Heidelberger Druckmaschinen Annual Report 2019

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FY2019 Annual Report · Heidelberger Druckmaschinen

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ANNUAL REPORT2019www.hardide.com

HARDIDE PLC
ANNUAL REPORT 2019

DIRECTORS AND ADVISERS

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

Hardide surface engineering technology

patented, low temperature CVD (chemical

transforms the way that parts perform under

vapour deposition) coatings which provide

severe service conditions. Previously, levels

exceptional wear and corrosion resistance

of friction, abrasion and aggressive chemical

and uniquely combine extreme toughness

attack have led to part failure, downtime

with ductility. Our coatings are ‘value-

and extreme cost. Our coatings are enabling

adding’ to components and lower operational

customers in high wear/high value industries

costs by reducing downtime, increasing

including oil and gas drilling and production,

productivity and improving performance.

aerospace, flow control, power generation

They can be precision applied to external

and precision engineering to optimise part

and internal surfaces including complex

life, improve product performance and make

geometries, enabling a level of engineering

significant operating cost savings. The Group

design flexibility not possible with alternative

has manufacturing facilities in Oxfordshire, UK

technologies.

and Virginia, USA.

DIRECTORS

AUDITOR

JOINT BROKERS

BANKER

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

Secretary
P Davenport

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

finnCap
60 New Broad Street
London
EC2M 1JJ

Royal Bank of Scotland
Dale Street
Liverpool
L2 2PP

Allenby Capital Limited
5 St Helen’s Place
London
EC3A 6AB

NOMINATED
ADVISER

finnCap
60 New Broad Street
London
EC2M 1JJ

REGISTRAR

PATENT AGENT

REGISTERED OFFICE
AND PRINCIPAL PLACE
OF BUSINESS

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

Harrison Goddard Foote
Belgrave Hall
Belgrave Street
Leeds
LS2 8DD

Hardide plc
11 Wedgwood Road
Bicester
Oxon
OX26 4UL

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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

Contents

Strategic Report • Key Points

FINANCIAL HIGHLIGHTS

▪ Record revenues, up 10% to £5.1m (FY2018: £4.6m)

▪ Gross profit of £2.4m (FY2018: £2.4m) reflecting shifting sales mix /

customer diversification

▪ Gross margin of 48% (FY2018: 52%); gross margin of 51% in H2

▪ EBITDA loss before exceptional items of £0.6m, including £0.1m costs

relating to moving site (FY2018: loss before exceptional items of £0.3m)

Record
Revenues

EBITDA loss before
exceptional items

Gross Profit

£5.1m£2.4m£0.6mStrategic Report • Key points

BUSINESS & OPERATIONAL HIGHLIGHTS

TRADING

▪ Broadening of customer and sector bases continuing

- Over half of the sales were from customers gained in the last four years

- Sales to oil and gas sector down 9% overall but H2 considerably stronger at 22%

up on H1

- 87% increase in sales to the flow control sector

- 40% increase in sales to the precision engineering sector

14-fold increase in sales of coated industrial diamonds

- Revenue from North American customers increased to 65% of total Group sales
- Martinsville facility delivered maiden positive EBITDA contribution (excluding
overhead marketing costs)

STRATEGIC

▪ Hardide-A coating selected as the replacement for hard chrome plating on various

Airbus aircraft components

▪ Three additional coating reactors currently on order - two for the UK (including larger

capacity reactor) and one for the US

▪ On track for the relocation of the UK operation to a new facility by September 2020 -

decision taken to increase investment in “future proof” equipment

TECHNOLOGY

▪ Innovate UK grant-funded project completed resulting in the launch of two new low-

temperature Hardide coating variants

▪ Awarded grant funding towards two National Aerospace Technology Exploitation

Programme (NATEP) projects

POST-PERIOD

▪ New patent granted by the UK Intellectual Property Office covering a water droplet

erosion resistant coating for turbine blades and other components

▪ Hardide-A coating selected for use on components for the new Lockheed Martin F-35

Lightning II Joint Strike Fighter

£5.1m£2.4m£0.6m6

Strategic Report • Chairman's and CEO's Report

CHAIRMAN’S AND CEO’S REPORT

INTRODUCTION

The Group is pleased to report record full year sales for the second consecutive year of £5.1m
- a 10% increase over last year (FY2018: £4.6m). Sector and customer diversification continued
as we gained new applications. Over half of the sales were from customers gained within the
last four years. The oil and gas industry remained our largest market. However, our sales to
it suffered a 9% decline in revenue in the year. We expect this to be reversed in the current
financial year as we saw a 22% increase in oil and gas sales in H2 (second half of the year)
compared with H1 (first half of the year).

There were two significant corporate projects this
year. The first was the fundraising of £3.5m (net)
announced in February 2019, which has allowed us to
continue our strategy to grow the business further by
investing ahead of revenue in marketing, capacity and
production equipment.

The second event was the signing of a 15-year lease
on newly-built premises close to the existing site, to
replace the current facility in Bicester. The building
has double the available floor space and a greater
roof height, which will allow the installation of larger
coating reactors. Three new reactors have been
ordered; two for the UK and one for the US. One of
the UK reactors will have a larger capacity and enable
the coating of components that are too large for the
current reactors, such as turbine blades and some
aircraft parts.

We are particularly pleased to report that our
Martinsville site, opened in January 2016 with the
benefits of the fundraising announced in August 2014,
made an EBITDA profit (excluding overhead marketing
costs) for the financial year for the first time.

FINANCIAL RESULTS

The Group generated record sales of £5.1m in the year
ended 30 September 2019 (FY2018: £4.6m).

Direct expenses including production salaries
increased by 20% due to the higher volume and mix
of sales, together with an increase in production staff
numbers ahead of the expected increase in activity.

Group gross profit was the same as last year at
£2.4m (FY2018: £2.4m). However, H2 showed a much-
improved performance over H1, with sales revenues
15% higher and a better mix of sales. Gross margin
recovered from 45% in H1 to 51% in H2, giving an
overall gross margin for the year of 48% (FY2018: 52%).
The first half gross margin suffered from an adverse
product mix, as previously reported in the Interim
results.

Overhead costs including the extra costs associated
with the lease on the new building rose by 12% (8.4%
excluding these costs), including the full year cost of
an additional US Business Development Engineer.

The Group’s EBITDA loss before exceptional items
was £0.6m including £0.1m of costs relating to the
new building in Bicester (FY2018: £0.3m loss before
exceptional items). The EBITDA loss in H2, excluding

new building costs, was a much reduced £0.1m
compared with a loss of £0.4m in H1. Grant income
amounted to £0.1m in the year.

On the balance sheet, net assets at 30 September
2019 were £7.7m (30 September 2018: £5.1m). This
included a cash balance of £4.8m (30 September 2018:
£3.3m). Inventories increased substantially as we took
the opportunity to purchase a considerable amount
of gas at a discounted price (also reflected in trade
payables), while the similarly substantial increase in
trade receivables resulted from particularly strong
trading towards the end of the year.

OPERATIONAL OVERVIEW

Customers and Markets

Revenue from flow control customers increased by
87% and from precision engineering by 40%. Demand
increased sharply during the year from a global player
in pumps, one of our longest standing US customers,
as they expanded their use of the Hardide coating
from their premium range to several new models.
This resulted in a 93% increase in sales to this
customer compared with the previous year. We are in
discussions with the same customer about using the
Hardide coating on more products in the year ahead.

Aerospace

In the aerospace sector, Airbus selected the Hardide-A
coating as the replacement for hard chrome plating
on compression flap pads on a range of aircraft types.
Qualification of other components is also nearing
completion and we are in detailed discussions with
Airbus’ tier 1 suppliers about production orders,
expected to commence in 2020. Hardide-coated
parts have been flying for evaluation by a major
MRO (maintenance, repair and overhaul organisation)
for over 4,000 hours on an Airbus A320. Subject
to examination at servicing, production orders
are expected in the current financial year. Other
development work for European and North American
aerospace companies is continuing. In November 2019,
post year-end, we announced that Hardide-A has
been selected to replace HVOF (high velocity oxy-fuel)
thermal spray coatings on components for Lockheed
Martin’s new F-35 Joint Strike Fighter. This follows an
extensive test programme and is another example of
the potential of Hardide’s coatings to replace the most
widely used tungsten carbide coating, HVOF, in severe
service applications. The testing of components

Strategic Report • Chairman's and CEO's Report

Sales Revenue £m
By Half Year

Strategic Report • Chairman's and CEO's Report

at Leonardo Helicopters was successful and the
parts are now incorporated into a full transmission
assembly ready for the final test. Full approval is
expected in 2020. We are also in technical discussions
with a number of other significant companies in the
aerospace and defence industries and early stage
trials have commenced.

Recent independent tests showed that the Hardide-A
coating increased the fatigue life of components,
rather than it being decreased, as in the case of most
other hard coatings. Not surprisingly, this has attracted
the interest of many engineers. We are very pleased
with the technical performance of the coating and
confident that announcements of supply agreements
will be forthcoming in the near term. The progress in
securing aerospace production orders has been much
slower than we would have liked, although this is a
common feature of the introduction of a new product
to the aerospace industry.

Oil & Gas

Activity remains generally buoyant in the oil and gas
sector, although the phasing of demand from two
customers contributed to a 9% year-on-year fall
in sales. One customer changed its manufacturer
of the components that we coat and this caused
an extended delay to their supply of components.
This began to be resolved in the second half and a
normal rate of supply has now resumed. In addition,
the Canadian oil industry has been experiencing
restrictions on pipeline capacity and this has resulted
in a slowdown of demand from the second customer.

Demand is now returning to previous levels and we
saw a 22% increase in sales to oil and gas customers
in H2 compared with H1. We expect further growth in
demand from oil and gas customers in the year ahead.
During the period, sales more than doubled to one of
the world’s largest oilfield service companies, placing
them among our top three oil and gas customers. We
worked with them to develop a coating for critical
components on a ‘breakthrough’ directional drilling
tool and this is now being deployed by operators
around the world. This tool also uses Hardide coated
industrial diamonds. A high volume of production
orders continued to be received under our supply
arrangement with a very large global oil and gas
operator. This is for components of complex design
that presented considerable technical and production
challenges. Due to its production-enhancing benefits,
these components are of high value to the customer.
The technology has been deployed in deepwater
fields in the Gulf of Mexico and shortly off the coast
of West Africa. The coating of these parts is being
carried out at our US facility. As a result of this
technical success, shortly we will begin testing with
a European manufacturer of a similarly complex part
which is used extensively in other industries. Demand
for the coating of industrial diamonds for oil and gas
customers rose significantly (14-fold) as the drilling

market resumed growth, and sales of these products
increased considerably. We continue to have many
new and potentially high-volume applications being
developed with customers in the oil and gas sector

Power Generation and Precision Engineering

Significant advances were made with our long-term
project to develop a water droplet erosion resistant
coating for blades and vanes used in turbines in the
power generation industry. Post-period, a UK patent
was granted that incorporates and protects this and
other applications. An application for an international
PCT (Patent Cooperation Treaty) patent is in progress
to cover many other countries. EDF Energy plans
to start field testing Hardide-coated blades in a
power station turbine during 2020 and we are at
various stages of progress with several other power
engineering customers on the testing of coatings for
turbine blades. We see this as an important market
for Hardide coatings in the future and one that will
continue to grow.

There was regular demand throughout the year for our
coated components for the high speed X-ray baggage
screening machine. We expect demand to grow as this
customer achieves greater market penetration and
increases their rate of manufacture.

Marketing

During the year, we exhibited at several highly-targeted
aerospace and oil and gas events, both in the UK and
the US. These have resulted in new leads and contacts
and fully justify our decision to exhibit in 2020 at the
Singapore Airshow and Farnborough International
Airshow.

Raising awareness of Hardide’s capabilities remains
a priority. Through conference presentations in
person and via webinar, Hardide’s Technical Director
has successfully extended awareness among new
audiences internationally.

The performance of our online presence is monitored
continually and so we know that our website is
used extensively as a technical resource. As a novel
technology with no direct competitors, the website
is a vital source of accurate information and data
about Hardide’s coatings and their applications. Next
year will see a new Hardide website. This will provide
updated content and functionality for technical and
investor visitors.

Production, Technology, Research &
Development and Accreditations

A third reactor for our US site was installed in
November 2018, together with a second and larger
pre-treatment line. This enabled the transfer from
the UK of complete lines of product for several US
customers and the processing of larger components.
In turn, this has increased the range of products for
US customers who prefer an ‘in-country’ supplier. The

Strategic Report • Chairman's and CEO's Report

Gross Profit £m
By Half Year

H1 2019

1.05

H1 2018

1.15

H1 2017

0.69

1.37

H2 2019

1.25

H2 2018

0.9

H2 2017

Strategic Report • Chairman's and CEO's Report

Martinsville facility was particularly busy in the second
half and has been fully utilising all three coating
reactors. A fourth reactor was ordered for the US site,
and this is due for delivery in spring 2020.

The move to the new UK site will result in a more
modern and efficient production environment with
further improved environmental performance.
Investment in equipment and technology to reduce
emissions and improved filtration systems is being
made alongside two new coating reactors and a
second and larger pre-treatment line. These will
enable bigger components to be processed, including
turbine blades and some aircraft landing gear
components.

The project, partly funded by Innovate UK, to develop
and characterise a new low-temperature Hardide
coating process was completed successfully. As
a result, the Group has launched two new low
temperature coating variants – Hardide-LT and
Hardide-LA. These open up new opportunities for the
coating of a wide range of metals commonly used in
the aerospace, and oil and gas sectors. Production
orders for them are now being received.

Work continued on two, 18-month projects to apply
the new low temperature coating to additional
substrates in the aerospace sector and to develop
new grinding and super-finishing techniques. These
have been part-funded by the National Aerospace
Technology Exploitation Programme (NATEP) and
are being carried out in collaboration with Airbus,
Leonardo Helicopters and other industry partners.

The quality management systems at the Bicester and
Martinsville sites were recertified in February 2019
to aerospace quality management system AS9100D/
ISO9001:2015, thereby confirming approval for coating
aerospace and space industry components. In July
2019, within two years of first being accredited by
NADCAP (National Aerospace and Defense Contractors
Accreditation Program), the Bicester site was awarded
NADCAP Merit Status for its superior performance and
commitment to continual improvement in aerospace
quality. The Bicester site was also recertified to
environmental standard ISO14001:2015 in September
2019. Plans are underway to achieve NADCAP
accreditation for the US site by the end of 2020
and Airbus production approval at that site is being
planned for 2021.

Brexit

The Group has evaluated the potential effects of a
variety of Brexit scenarios and is not expecting to be
affected in any material fashion due to the low level of
transactions with other EU countries.

Intellectual Property

The IP committee met quarterly to review the IP
portfolio. In October 2019, shortly after the full year
end, the UK Intellectual Property Office granted a

patent on the further-enhanced Hardide coating and
its new applications, particularly in power generation.
This is an important achievement. Fundamental
research continues into the development of new
coating variants and applications that will further
strengthen and widen the Group’s IP portfolio.

Site relocation

The project to relocate the UK operation to a new
building in Bicester is advancing well. Contracts
have been placed and, at the time of writing, the
building is now being fitted-out internally and a larger
capacity electricity supply is being installed to cope
with power requirements. As detailed planning of
the move proceeds, the decision was made to take
the opportunity to “future proof” and improve the
operating capabilities of the Group by investing in
superior new equipment rather than transfer dated
equipment, notwithstanding that the costs of such are
expected to be slightly ahead of the Board’s previous
expectations for the relocation project. The Board is
exploring the most effective means of financing these
incremental costs and has provisionally secured a
first line of asset finance attached to a new reactor.
The new production equipment will start to be
installed in March 2020. This has to be operational
before the transfer of work and equipment from the
existing facility can begin. Two new coating reactors
are on order for the site, as well as other items of key
processing plant. The project is on schedule for full
operation at the new site in September 2020.

STRATEGY

Hardide’s technologically advanced surface
engineering coatings help solve complex and
difficult technical problems and frequently convey
considerable commercial advantage to users. Our
coatings provide a unique combination of valuable
mechanical and chemical properties that cannot be
achieved by any other type of coating. In recognition
of that, Hardide has joint application developments
underway with three major coating companies, each of
which has a strong international presence. We expect
that cooperation of this kind will develop further.

Another form of industrial cooperation that has
already proved to be highly beneficial is the
relationships that have been developed with major
end-users of Hardide coatings, rather than with
customers directly. These end-users currently include
Airbus, Leonardo Helicopters, EDF Energy and major
US oil and gas companies. By cooperating with such
large end-users, not only is awareness improved
greatly, but more importantly, there will be ‘end-user
pull’ on their tier 1 suppliers. The Group is aiming to
increase the number of end-users with whom we have
close cooperation.

Over the past year, very good progress has been made
in diversifying the customer base, but we continue to
strive to diversify further. As a result, we are on the

Strategic Report • Chairman's and CEO's Report

OUTLOOK

The start to the new financial year has been strong
and the Board is confident of continued revenue
growth and business diversification in the coming year.
The Board expects gross profit margins to remain at
levels comparable to the second half of FY2019.

The project to relocate the business to a new site
is on-track and we are looking forward to operating
from the facility in autumn 2020 and to the increase
in capacity this will provide. This move will enhance
efficiency and open up new business opportunities, as
well as presenting a modern facility to our blue-chip
customer base and investors. The costs of the project
are being monitored closely and are expected to be
borne in the current financial year. The Board aims to
ensure that the asset base of the Group matches its
needs for the future and will invest further to deliver
this.

Robert Goddard
Chairman

Philip Kirkham
CEO

23rd January 2020

threshold of meaningful sales to aerospace customers
and there has been very encouraging development
of our coatings for the power generation industry –
potentially a very large market for Hardide. A new
patent has been granted recently for this application.

The Board retains its positive view of Hardide’s
potential for growth and is investing further in
expanding production capacity, marketing, business
development and R&D (note that R&D costs are not
capitalised) to help drive this. In the short term,
further spending on these activities is not profit-
maximising, but the Board is confident that spending
of this kind will maximise shareholder value. The
Group does not have any material borrowings and its
asset base is attractive to providers of asset finance.
The Board is exploring this as a financing option to
manage efficiently the cash costs of expansion and
investment.

We were very pleased to have been able to lease a
new and considerably larger facility nearby in Bicester.
To maintain production capacity during the transition
to the new site, all Hardide’s UK activity will be moved
progressively, and the Group will be operating from
the new site by September 2020. In addition to being
more efficient, the new premises will assist in enabling
the Group to improve continually its environmental
performance. Many of Hardide’s employees have
unique skills and so minimising staff turnover as a
result of a move is very important. A new and much
more agreeable location close to our existing one will
help retention and create a much-improved working
environment.

In North America, further progress has been made
in diversifying and expanding the customer base.
To meet the resulting further growth in demand, an
additional reactor will be installed there in spring 2020.

EMPLOYEES AND STAKEHOLDERS

Hardide benefits hugely from its loyal, able and
dedicated staff, both in Bicester and in Martinsville.
They have again worked hard to deliver record sales
and achieved many technical successes this year. The
Board thanks our staff for their commitment. We also
thank our shareholders and other stakeholders in the
business for their continued support and confidence in
the future for our business.

Strategic Report • Financial Review

FINANCIAL REVIEW

STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF FINANCIAL POSITION

Non-current assets increased by £717k during the
year, net of £481k depreciation charge. This included
£538k of deposit and stage payments for fixtures and
equipment to be installed in our new Bicester site.

Inventories rose to £691k from £286k in 2018, in large
part due to receiving a significant quantity of our key
process gas in the USA just before year end which was
being offered by a supplier at a significant discount
to our usual price. Trade and other receivables also
increased by £254k compared to 2018 due to high
sales in the final quarter.

During the year, the final instalments were received
of a $240k (£195k), 5 year term loan from Martinsville
Henry County Economic Development Corporation
which increased non-current financial liabilities; also
included in that heading is the liability created by the
start of a 10.5 month rent-free period on our new
Bicester premises. The provisions charged in 2018
remain for potential repayment of grants received
towards the creation of our Martinsville USA facility,
although an extension of the performance date of one
of the grants has been applied for.

In March 2019, Hardide plc raised £3.5m net of
expenses to invest in a new UK facility to replace its
existing site in Bicester and fund additional equipment.
At the same time, Hardide plc consolidated its 0.1p
ordinary shares in to 4p ordinary shares in the ratio
of 40:1.

Peter Davenport
Finance Director

Sales revenue for the year as a whole increased by
9.5% to £5.05m, up from £4.61m in the prior year. Sales
in the first half of £2.35m (H1 2018: £2.16m) increased
to £2.70m in the second half (H2 2018: £2.46m). Since
2015/16, group revenues have shown a 33% compound
annual growth rate.

However, an abnormal product mix in the first half
meant that gross margins were just 45%; mix returned
to expected proportions in the second half which saw
gross margins recover to 51%. Overall gross margin
for the year was 48%. Because of the dilutive effect
of increasing revenue on relatively fixed production
salaries, gross profit has shown a much larger
compound annual growth rate of 52% than revenue
growth.

Costs of sales rose by 19.7% to £2.64m (2018: £2.20m),
reflecting an increase in production headcount both
in the UK and USA, the full year effect of a customer
supply agreement whereby Hardide is responsible for
sourcing as well as coating the components, and the
adverse sales mix in the first half.

Administrative expenses increased by 12% to £3.04m
(2018: £2.71m) as we continued to invest in business
development and incurred overhead costs relating to
the new site in Bicester. Grant income amounted to
£64k in the year (2018: £60k).

The Group’s depreciation charge increased by £108k to
£481k as the new third reactor in our US facility was
commissioned. We also charged a provision against
profit of £101k to take account of the onerous nature
of our lease on our existing Bicester premises, along
with an estimate of dilapidation costs which might
occur.

The Group loss before interest, tax, depreciation
and amortisation (EBITDA) for the year amounted to
£0.62m, of which £0.44m was incurred in the first
half, reducing to £0.18m in the second half, which also
included £0.1m of costs incurred for the new site.
Excluding these, EBITDA loss would have been £0.08m
in the second half. Our Martinsville site produced a
maiden EBITDA profit (excluding business development
costs).

EBITDA £m
By Half Year

Strategic Report • Financial Review14

Strategic Report • Strategic Report

STRATEGIC REPORT

PREAMBLE

This strategic review has been prepared after the successful raising of £3.5 million (net) in
March 2019 for the further development of Hardide plc. This was by way of subscription to and
placing of new equity.

The fundraising was in addition to other notable successes in the year to 30 September 2019.
Among these was securing the 15-year lease of new premises nearby to accommodate all
of Hardide's UK production requirements for the immediate future, together with R&D and
administration offices. A considerable amount of management effort has been spent over the
year on detailed planning for the move to the new site.

OVERVIEW

PRODUCTION

The Board believes that a strong upward trajectory in
gross profit will be seen externally as a clear indicator
of the Group’s value. Accordingly, an important focus
is on investing to grow revenues significantly so that,
because of the Group’s high operational gearing, gross
profit is maximised.

The additional customer interest in North America
and consequent sales has justified our decision
to locate a manufacturing facility in the US. 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 provides confidence that further geographical
expansion can be made successfully when the time
comes. In this respect, we are at the very early stages
of assessing the merits of a Hardide facility in the Far
East to cater for the considerable potential in this
region.

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
Company continues to have 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, Hardide is
financially sound.

The Company is making good progress in its strategic
goal of broadening its customer and sector base and
is now less exposed to a small number of customers
and markets. This year, good progress has also been
made in widening our base of industry sectors,
products and customers and Hardide is now far less
vulnerable to demand fluctuations. Nonetheless,
further diversification can be achieved and remains a
strategic objective.

Hardide has had good success in working with end-
users and their tier one suppliers. This enables a ‘push
and pull’ approach to developing additional revenue.
This is an important part of our overall strategy and
we plan to develop it further.

The successful establishment in early 2016 of our
coating facility in the US continues to serve its
intended purpose of enabling the Company to address
a substantial part of the large North American
market that would otherwise not be available to
us. Additionally, being a geographically separate
production facility provides greater security of supply
for customers who have effectively 'designed in' or
single-sourced Hardide for critical components. An
additional benefit of establishing a geographically
remote facility is our development of in-house
expertise and experience in the transfer of Hardide
technology. This will be of great benefit when there is
to be further geographic expansion.

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 and a fourth will be in place
in Spring 2020. There remains space in the existing
premises for considerable further expansion of
capacity.

SALES & MARKETING

Customer contact

Although Hardide's coatings have wide applicability
in very 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 Company 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. The recent announcement of
approvals by Airbus and Lockheed Martin will help
greatly to ‘spread the word’.

In parallel with these ‘awareness’ campaigns, our
business development managers frequently contact
potential users who have not indicated an immediate

Strategic Report • Strategic Report

requirement. However, these customers often make
contact at a later date when a need arises. As well
as identifying and generating opportunities, business
development staff are also concerned with following
up interest expressed by potential users who have an
identified and immediate need.

In North America, we now have two professionally-
qualified engineers as business development
executives. The longer-serving manager is now
concentrating on developing the aerospace industry
and other precision engineering companies, while the
principal target of the new business development
engineer is the oil & gas sector.

Whilst the past year has seen pleasing diversification
by customer, it remains an important strategic goal
to diversify further by industry sector. A ramp up in
sales to the aerospace industry is expected this year
and further progress is being made with development
of the application of our recently patented coating for
turbines in the power generation industry.

Customer and industry diversification

The customer and industry diversification element of
the Group’s strategy will continue to play a major part
in our planning.

In 2017-18, we developed new applications for a
major global oil & gas operator, for high volume and
high value applications and which we believe will be
taken up by other major oil & gas producers. Together
with our new supply contract with a North American
manufacturer of well stimulation tools, this is a
major customer and sector diversification away from
directional drilling and helps spread our oil & gas
business across both exploration and production.

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

The Board is of the view that Hardide will be more
robust if, in addition to aerospace and oil & gas, it
was to serve a third major industry. In that regard, we
are making good progress with addressing the power
generation industry with a coating that will reduce
wear on turbine blades. Already the coating variant
for this application has received a UK patent and an
international patent application is in progress.

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.

Meanwhile, we recognise that potential customers
in SE Asia and China continue to show high growth
rates in the aerospace, power generation and oil & gas
industries. Preliminary assessments have begun to
determine where best to invest first. Before detailed
planning gets underway, we intend to stabilise and
strengthen our position in North America and Europe.

PRODUCT RANGES, CUSTOMERS AND MARKET
CHARACTERISTICS

The Company classifies its applications into five
sectors: Oil & Gas (both exploration and production),
Aerospace, Flow Control, Power Generation and
Precision Engineering. Since Hardide provides a unique
product and has many diverse applications, a useful
estimate of the overall size of the total addressable
market is not possible. However, taken together they
are believed to be very large indeed.

Oil & Gas

Historically, this has been the dominant sector for
Hardide and may remain so; at least for the medium
term. However, overall demand from the sector can
be highly cyclical and previously 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.

Customers in the oil & gas industry are notoriously
secretive and our agreements with them usually
prevent the Company from publicising their name and
especially not the coating’s particular use. This feature
makes development of new customers much harder
than otherwise it would be.

Aerospace

In contrast, the aerospace industry is much more
open and approvals by Airbus and Lockheed Martin for
Hardide have enabled us to promote the coating to a
wide range of other aerospace manufacturers.

The aerospace industry is notoriously reluctant and
slow to accept new products, but once it has, sales
can be relatively predictable, consistent and likely to
be sustained over an extended period.

Flow control

Flow control is our second largest market sector.
Sales have grown substantially this year due to our
main North American pump customer extending the
application of the Hardide coating to a wider range,
resulting in a high regular demand. Apart from this
customer, 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. The flow control
sector is important to the Group and we will continue
to develop it.

Precision engineering

Here, the potential market size is considerable, but
it is specialised and highly fragmented and therefore
hard to address. Currently revenue from this sector
is dominated by our airport baggage X-ray scanner
customer, together with a number of other specialised
applications.

Strategic Report • Strategic Report

Power generation

We are working closely with EDF and turbine
manufacturers on testing our newly-patented
coating. If accepted, the Hardide coating will improve
the operating performance and efficiency of such
equipment and should result in substantial sales over
a long period.

INTELLECTUAL PROPERTY, PRODUCT
DEVELOPMENT AND R&D

A new UK patent was granted in November 2019 for a
new coating for protection of steam and gas turbine
blades and vanes used in the power generation
industry and the blades and vanes used in the low
temperature compressor part of an aircraft engine.
Additionally, the patent covers other components that
are subject to erosion by cavitation. An international
patent application is in progress. This patent will
further enhance protection of our coating and
deposition processes.

A project, partly funded by Innovate UK, to develop
and characterise a new, low-temperature Hardide
coating process was completed successfully. As
a result, the Group has launched two new low
temperature coating variants - Hardide-LT and
Hardide-LA. These new products will open up new
opportunities for the coating of a wide range of metals
commonly used in the aerospace, and oil and gas
sectors. Production orders for them are now being
received.

The Company also received a grant from NATEP1
for the development of applications of the low
temperature coating on aerospace metals. In addition,
the same body awarded a separate grant for a project
to develop innovative techniques for grinding and
‘super-finishing’2 of a Hardide-coated product. These
projects began in September 2018 and are due to last
for 18 months. Both have multiple industrial partners,
including Airbus and Leonardo Helicopters. Hardide is
the lead partner in each case.

The Company is making steady progress with more
fundamental research into new and potentially
patentable variants of the Hardide coating.

Recently, the Company sponsored one of its senior
technical staff to pursue a doctorate (part-time) at
Cranfield University. In addition, Hardide’s technical
director has become a visiting lecturer at the same
institution. Not only will this assist the Company in
keeping abreast of relevant technologies but also
provide a means of educating future engineers of the
benefits of high-performance coatings, especially
Hardide’s.

PARTNERING

Hardide’s technologically advanced surface
engineering coatings help solve complex and
difficult technical problems and frequently convey
considerable commercial advantage to users. Our
coatings provide a unique combination of valuable
mechanical and chemical properties that cannot be
provided by any other type of coating. These features
have assisted in the strengthening of our partnerships
on long-term projects with important end-users and
component manufacturers.

An example of this is the joint application
developments that are underway with a number of
major coating companies, each of which has a strong
international presence. We expect that co-operation of
this kind will develop further.

Another form of industrial co-operation that is proving
to be highly beneficial is the relationships with major
end-users of Hardide coatings, rather than just with
their tier 1 suppliers. These end-users include Airbus,
Leonardo Helicopters, EDF Energy and certain major
US oil and gas companies. By co-operating with such
large end-users, not only is awareness among other
end-users improved greatly but, just as importantly,
there will be ‘end-user pull’ on their tier 1 suppliers.
The Company is aiming to increase the number of
end-users with whom we have close co-operation.

RISK

Despite the markedly greater diversification achieved
in the year, the proportion of the Group’s sales to
relatively few major customers and sectors remains
high. As a proportion of total sales, those to the oil
& gas industry will continue to be significant in the
short- to medium-term as substantial sales are
developed with the major oil & gas customers with
whom we have signed framework agreements.

In the past, cessation or delay of customers’ test
programmes has inhibited Hardide’s growth. While
this is now much less acute, it still affects the rate
of growth of the Group and so may be viewed as a
risk. The Group has little or no influence over the
commencement or 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 Group devotes significant application
development time and technical resources on
test programmes that do not result in sales, or on
programmes that are 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 for Hardide
justifies 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 team of well-
qualified people in production, engineering, metallurgy
and chemistry. We will continue our strategy of
recruiting more technical and operational expertise
and developing individuals, partly to provide for
succession to vital roles within the Group.

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 slowdown stemming from Brexit
is 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. At present, the Group has sales to
Europe that are low relative to those to North America
and the UK and so, reduced demand from Europe
would have only a small effect overall.

1 National Aerospace Technology Exploitation Programme 2 The process of achieving extremely fine and precise surface finishes

Strategic Report • Strategic Report

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
here there is a potential ‘Brexit risk’. We mitigate this
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, therefore the risk of
shortage in the US is considerably lower than in the UK.

A major incident could lead to the temporary closure
of a coating plant resulting in a disruption to service.
To mitigate this risk, all operations are carried out
to relevant ISO9001/AS9100 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 the year, the
increase in capacity at the US facility has provided
further security against an inability to supply due to
production difficulties in the UK.

THE ENVIRONMENT AND STAKEHOLDERS

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.

As part of the planning of the new replacement
facility in Bicester, special attention has been paid
to identifying items of plant and methods of waste
treatment that reduce environmental impact or use
less material, or both. This means that otherwise
serviceable, but old and less-efficient, machinery will
be replaced.

Hardide’s products almost invariably greatly increase
the life of components. They also help improve
efficiency and reduce downtime for end-users. Each
of these features bring environmental benefits and
our business development managers endeavour to
convince customers to purchase Hardide products not
only on the basis of their ‘whole life’ cost but also the
lowering of their environmental impact.

CASH

The fund raising completed successfully in March
2019 has strengthened our balance sheet and allowed
the Group to increase and upgrade its processing
capability and capacity at the same time as moving
to a new site. Further revenue investment in technical
and market development has also been enabled.

A strong balance sheet will provide greater security in
the event of another downturn in demand. Also, since
Hardide provides a unique product, it is important to
our major customers that we continue to demonstrate
a strong balance sheet that will support the Group in
the event of possible adverse trading or disruption to
production.

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 look to plan capacity
at least two years ahead.

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 total turnover.
This is partly responsible for the development of the
P&L over the four most-recent years where sales
on average increased by 33% but gross profit grew
at a rate of 52% and fixed costs rose at only 15%.
Accordingly, increasing sales is the primary objective
for the Group. The first sale to a new customer
of Hardide usually takes some years. Accordingly,
expenditure on direct and indirect promotion of sales
must continue to be made well ahead of the sales
resulting from such promotion.

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 programmes 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 a 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 in
order to have suitable succession plans in place. Since
the Hardide coating process is unique and not used by
other companies, the only individuals with substantive
and up-to-date knowledge of the process are those
employed by the Company. 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 must begin ahead of demand.

Corporate Governance • Board of Directors

THE BOARD OF DIRECTORS

Philip David Kirkham
Chief Executive Officer

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

Peter Neil Davenport
Finance Director

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

Robert John Goddard
Chairman

Robert was appointed as 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 and
sold successfully its four speciality chemical subsidiaries,
thereby increasing shareholder value considerably. 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 technology companies, mainly in med-tech and
pharmaceuticals.

Current external appointments: Partner at Boundless
Ventures LLP

Dr Yuri Nikolaevich Zhuk
Technical Director

Yuri is a co-founder and Technical
Director. He is chairman of the
Intellectual Property Committee.

Yuri started his career as a scientist and has
more than 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 Open
University in the UK. 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 has
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 all aspects of development of the
Company’s technology. He is the author of patents and
numerous scientific and technical publications and has
presented Hardide's 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.

Current external appointments: In 2019, Yuri was
appointed a Visiting Fellow and a Recognised Teacher at
the Cranfield University School of Aerospace, Transport
and Manufacturing.

Corporate Governance • Board of Directors

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. Charles has held pan-European and global
divisional CEO responsibilities for multi-site, multinational
businesses, focusing on performance improvement and
restructuring with Dana Corporation (USA), TT electronics
plc (UK), Armstrong World Industries, Inc. (USA) and O&S
Doors, Ltd (UK) and developing overseas markets. He
spent 16 years in expatriate positions in Germany, France
and the USA. He also brings his plc experience to the
Board, having served as Non-executive Director of Victrex
plc and Brammer plc, where he was Chairman of the
Audit Committee, and Chairman of the Remuneration
Committee, respectively. Charles holds a BA Honours
Degree in Modern Languages from the University of
Oxford and an MBA from INSEAD Business School. He is
fluent in French and German.

Current external appointments: Non-executive Adviser
of Innovo Ltd, an e-commerce business that streamlines
B2B transactions and facilitates the commercialisation of
breakthrough technologies.

Andrew Richard Boyce

Non-Executive Director

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

Andrew represents a significant family
shareholding with a 13.8% 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 as a 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.

Timothy Julian Rice
Non-Executive Director

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

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 advisor to companies in the aerospace
and defence sectors, involved in strategy, business
development, 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

Corporate Governance • Report of the Directors

REPORT OF THE DIRECTORS

RESULTS

The Group loss for the period, after taxation, amounted to £1,136,000 (2018: £865,000 loss). The directors have
declared that no dividends will be paid in respect of the 2019 financial year (2018: 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.

Appointed

Resigned

Number of ordinary 4p shares

Number of ordinary 0.1p shares

30 September 2019

30 September 2018

Robert Goddard

28 January 2008

Andrew Boyce

18 June 2012

Charles Irving-Swift

20 March 2018

Tim Rice

20 March 2018

Philip Kirkham

1 September 2012

Yuri Zhuk

Peter Davenport

14 March 2005

21 March 2006

369,807

16,792

17,916

81,490

365,802

318,191

7,311,285

588,235

505,050

550,000

2,592,952

6,281,132

4,376,667

In addition to the share Andrew Boyce holds in his own name, he also represents family and trust holdings totalling
6,761,693 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 18 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.

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 26.

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 2019 the following shareholders had a disclosable interest in 3% or more of the nominal value of
Hardide plc’s shares:

Canaccord Genuity Wealth Management (Institutional)

Andrew Boyce & Associates

A Badenoch & Associates

Amati Global Investors

Unicorn Asset Management Ltd

Canaccord Genuity Wealth Management (Non-Discretionary)

T Simpkin

W S C Richards

Robert Goddard
Director

23rd January 2020

Shareholding

6,888,942

6,761,694

5,600,000

4,521,963

2,827,702

2,171,790

1,983,425

1,838,009

14.0

13.8

11.4

9.2

5.8

4.4

4.0

3.7

Corporate Governance • Corporate Governance Statement

CORPORATE GOVERNANCE STATEMENT
2018-19

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. As shown in the table below, all directors attended each board meeting and members
of each Committee Board also attended each meeting for which they were eligible.

Scheduled
Board
Meetings*

NEDs only

Audit
Committee**

Remuneration
& Nomination
Committee**

Risk
Committee

Intellectual
Property
Committee

R J Goddard

P D Kirkham

P N Davenport

Y N Zhuk

A R Boyce

T J Rice

C Irving-Swift

** In addition, in some instances, directors who were not members of a Committee at the date of its meeting, attended by invitation some or all parts of
the meetings of the Audit, and Remuneration & Nomination Committees.
* Where a Board-level decision is required to consider and accept a recommendation from a Board Committee, a single purpose Board meeting may be
convened.

Meetings with only Non-executive directors

These ‘NED-only’ meetings first took place in this
financial year. They serve to bring together matters
better covered in this way and supplement the
ongoing but less formal contact between and among
non-executive directors.

These meetings have formal agenda and minutes are
taken. Matters considered include performance of
the Board as a whole and that of individual executive
directors. Also considered may be the effectiveness of
Board Committees, the identification and management
of major risks; together with achievement of strategic
plans.

Board Committees

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
four such written directors' resolutions in the year.

Occasionally ad hoc Board or Committee meetings
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 the appointment of
directors, any raising of funds, the setting of high-level
targets, approval of budgets, strategy, and capital
and revenue expenditure above certain limits, license
agreements and incentive schemes. Authority levels
for expenditure are delegated to individual executives
or management committees according to a schedule
agreed by the Board.

Formulation of strategy

Formulation of Corporate Strategy is led by the
Chairman and set by the whole Board. The creation
of budgets and Business Strategy is set within the
framework of the Corporate Strategy and prepared by
the executive directors and other senior management.
This Business Strategy is then challenged by the
Board, adjusted if necessary, finally approved and then
monitored by it. Adjustments agreed necessary are
formalised in writing shortly after the review.

Approximately six months after the full strategy
review, a meeting of directors and senior management
reviews progress against the agreed strategy.

A summary of Hardide’s Corporate Strategy can be
found in the Company’s Annual Report.

Corporate Governance • Corporate Governance Statement

Business Reviews

At its regular monthly meetings, the Board reviews
both the financial and non-financial performance of
the Group. Financial information for the Company
and its subsidiaries includes detailed profit & loss
accounts, cash flow statements and balance sheets;
together with analyses of movements in cash, trade
debtors & creditors, and fixed assets. 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, including the current move to new premises,
is also reviewed monthly.

During the course of the year the Board adopted a
policy intended to ensure board leadership of health
and safety matters and institute board-level review
of progress against objectives and KPIs. An important
feature of this is a half-yearly joint presentation by the
CEO and VP of Operations.

COMPOSITION, CULTURE AND EFFECTIVENESS
OF THE BOARD

Independence of directors

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 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.

The ‘independence’ of each of the four non-executive
directors was assessed by four, single purpose ad hoc
committees of directors. Excluded in turn from these
meetings 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. However, 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’.

Number of directors

Since 2017-18, there has been a majority of non-
executive directors. This has enabled the appointment
of a senior independent director (‘SID’) and a director
with high-level expertise, experience and network
in the aerospace industry. Moreover, in compliance
with the Code, the chairs of the Audit Committee and
the Remuneration & Nomination Committee are now
independent directors.

Culture of the Board and its capability to meet
new challenges

Non-executive directors are actively and regularly
consulted by the Chairman on a one-to-one basis and
more formally during meetings of the non-executive
directors alone. 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 SID and has designated Charles Irving-Swift to
assume that role.

Open exchange and mutual challenge 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.

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.

All directors are conscious that the growth now
expected of Hardide will present additional challenges.
There will be more specialism and the dynamics
of staff interaction will change. The Board is well
equipped with directors who have experience of
organisational growth and able to support changes
that arise.

The move to a substantial new site, will present
additional challenges. Again, executive directors
and senior managers, working closely with external
consultants, are delivering the expertise for fit-out and
installation of plant and equipment.

Corporate Governance • Corporate Governance Statement

Roles of CEO, Senior Independent Director and
Chairman

Evaluation of the Board and individual
directors

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 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:

iv 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.

v being available to meet principal shareholders.

vi being a sounding board for the Chairman.

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.

vii along with other non-executive directors and having

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

Meetings of the four non-executive directors may
include consideration at appropriate times of the
performance of individual executive directors and of
the board as a whole.

The Chairman:
The role of the Company’s Chairman is to:

i ensure effective communication with shareholders;

ii be available 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 of the
Intellectual Property Committee;

vii together with the CEO, direct and lead recruitment
and induction programmes for new directors and
senior recruits; and

viii ensure the appropriate content, accuracy, format
and presentation of information for the Board.

Range of skills and experience

A formal exercise is undertaken annually to establish
the range of skills and experience needed among the
directors as a whole, and ‘mark’ these against those
ideally needed to achieve the Board’s objectives.
These include professional qualifications and
practice in engineering and accounting, together with
relevant experience in corporate governance and the
formulation and implementation of strategy. Each
director is ‘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. Four of the directors
have MBAs.

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 Company
is fairly small, and its corporate structure is simple,

Corporate Governance • Corporate Governance Statement

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 formal succession plan is maintained
for those directors and senior staff who are vital to
the operation and ultimate success of the business.
The relevant roles and individuals are identified, and
the Chairman, CEO and Remuneration & Nominations
Committee agree on action in respect of the roles
covered by the plan.

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
the Chairman and Charles Irving-Swift, these fees are
now paid wholly under the PAYE system. For 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 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; whereupon, other directors will consider
the acceptability of such roles. To date, no additional
commitment of a director has been found to be
unacceptable.

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 and
the previous chair, Andrew Boyce. It meets at least
quarterly. In this financial year it met six 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 senior
members of the management team who report to
directors.

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 value 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 or CEO or both,
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 aligned 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
and Robert Goddard. 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 and professional
experience.

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 two times during the
year.

Corporate Governance • Corporate Governance Statement

The duties of the Audit Committee are to:

Intellectual Property Committee

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,

review the independence and effectiveness of the
external auditor; 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,
for example tax advice, 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 audit process or its outcome that
required action by the Committee.

The Company’s auditors, James Cowper Kreston, were
reappointed for the year ended 30th September 2019
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.

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 the services of the company’s Patent
Attorneys (HGF Ltd) to perform patent searches and
provide legal advice on 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 as needed. 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; and

iii align the executive directors' interests with those of

shareholders.

Corporate Governance • Corporate Governance Statement

Remuneration components

Compensation for loss of office

The remuneration of the executive directors has up to
five components. They are:

i base salary;

ii an annual performance-related discretionary bonus

(non-pensionable);

iii a long-term incentive plan comprising share

options;

iv medical insurance for employee and family; and

v in some cases, a car allowance.

Share Option scheme

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
directors, senior managers and employees;

iii grants may be considered for exceptional

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, Brokers 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 conflicted, the Company’s
auditor provides tax advice and prepares returns. It
also advises on R&D tax credits;

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

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

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. The current scheme
incorporates three different elements:

a the period since grant and the achievement

of particular share price above that current at
the date of grant, over two year and three-year
periods,

b the growth of sales made by the business,

c the improvement in gross margin; and finally

iv 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. There has been no
change this year.

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

vi Employment lawyer; and

vii an adviser on matters related to Health, Safety &

Environment .

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

BRIBERY ACT, 2010 (THE ‘ACT’)

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.

Corporate Governance • Corporate Governance Statement

THE MARKET ABUSE REGULATION (‘MAR’)

COMMUNICATION WITH STAKEHOLDERS

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.

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.

CYBER SECURITY

The Company believes that it has strong cyber security
systems. It has an ongoing contract with an external
specialist cyber security company and has been
awarded the government-backed Cyber Essentials
accreditation.

Shareholders

When there is a significant event regarding 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 or
Allenby Capital, the Company’s joint 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. Once in production
at the Company’s new site, there will be a special open
day for shareholders.

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 its employees, customers,
suppliers, the local community and other parties
with whom it interacts. As part of its Quality and
Environmental 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 14001:2015.

On behalf of the Board,

Robert Goddard
Chairman

23rd January 2020

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 2019 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 2019 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

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.

AN OVERVIEW OF THE SCOPE OF OUR AUDIT

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.

KEY AUDIT MATTERS

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

Financial Statements • Independent Auditor's Report

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.

GRANT INCOME RECOGNITION

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.

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.

How the scope of our audit responded to
the risk

To assess the appropriateness of the application
of accounting standards and the assumptions and
judgements 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

Financial Statements • Independent Auditor's Report

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

• considered the value, nature and cause of

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

Key observations

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

PROVISIONS

Risk description

During the year the Group leased a new facility in
the UK and plan to relocate to the new site when it
is complete, which is scheduled for September 2020.
As detailed in note 14 to the financial statements, the
Group has recognised a provision for dilapidations of
£50,000 (2018: £Nil) and a provision for an onerous
lease of £51,000 (2018: £Nil). The assessment of these
provisions requires judgement and estimations to be
made by the Group. The estimates have been made
based on the anticipated costs to restore the premises
to their original condition and project timetables which
are inherently uncertain.

How the scope of our audit responded to
the risk

To assess the appropriateness and completeness of
provisions 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 calculating provisions;

• examined the lease agreement for the Group’s

contractual obligations on termination of the lease;

• assessed the estimations and inputs included in the
calculations, reviewing the appropriateness of the
assumptions made;

• performed recalculations on the provisions to check

the accuracy of the calculations;

• reviewed for additional sources of documentation to

assess for completeness of the provision; and

• considered the disclosures in the financial

statements regarding the provisions.

Key observations

The resuls of our testing were satisfactory and we
consider the disclosures surrounding provisions 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 £76,000 (2018: £69,000).
Performance materiality of £53,000 (2018: £48,300) was
applied for testing and it was agreed with the Board
that we would report on all audit differences in excess
of £3,000 (2018: £3,500), 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 turnover
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, was viewed as
an appropriate level to set materiality. Based on our
professional judgement materiality was set at £52,000
(2018: £41,000). Performance materiality of £36,000
(2018: £28,700) was applied for testing and it was
agreed with the Board that we would report on all
audit differences in excess of £2,600 (2018: £2,100), as
well as differences below that threshold that, in our
view, warranted reporting on qualitative grounds. We
also report on disclosure matters that we identified
when assessing the overall presentation of the financial
statements.

Materiality in the prior year was based on a 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 £56,000 and £64,000.

Financial Statements • Independent Auditor's Report

OTHER INFORMATION INCLUDED IN THE
ANNUAL REPORT

The Directors are responsible for the other
information. The other information comprises the
information included in the annual report, other than
the financial statements and our auditor’s report
thereon. Our opinion on the financial statements does
not cover the other information and, except to the
extent otherwise explicitly stated we do not express
any form of assurance conclusion thereon.

In connection with our audit of the financial
statements, our responsibility is to read the other
information and, in doing so, consider whether the
other information is materially inconsistent with the
financial statements or our knowledge obtained in the
audit of otherwise appears to be materially misstated.
If we identify such material inconsistencies or
apparent material misstatements, we are required to
determine whether there is a material misstatement
in the financial statements or a material misstatement
in the other information. If, based on the work we
have performed, we conclude that there is a material
misstatement of this other information, we are
required to report that fact.

We have nothing to report in this regard.

OPINIONS ON OTHER MATTERS PRESCRIBED
BY THE COMPANIES ACT 2006

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

• the information given in the strategic report and the
directors’ report for the financial year for which the
financial statements are prepared is consistent with
the financial statements; and

• the strategic report and the directors’ report have
been prepared in accordance with applicable legal
requirements.

MATTERS ON WHICH WE ARE REQUIRED TO
REPORT BY EXCEPTION

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

We have nothing to report in respect of the following
matters in relation to which the Companies Act 2006
requires us to report to you if, in our opinion:

• adequate accounting records have not been kept

by the parent company, or returns adequate for the
audit have not been received from branches not
visited by us; or

• the parent company financial statements are not in
agreement with the accounting records and returns;
or

• the financial statements are not in agreement with

the accounting records and returns; or

• certain disclosures of directors remuneration

specified by law are not made; or

• we have not received all the information and

explanations we require for our audit.

RESPONSIBILITIES OF DIRECTORS

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

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

AUDITORS’ RESPONSIBILITIES FOR THE AUDIT
OF THE FINANCIAL STATEMENTS

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.

USE OF OUR 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

23rd January 2020

Financial Statements • Consolidated Statement of Comprehensive Income

CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
For the year ended 30 September 2019

Revenue

Cost of sales

Gross profit

Administrative expenses

Depreciation and amortisation

Exceptional items:
Provisions

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

2019
£ ’000

5,052

(2,635)

2,417

(3,037)

(481)

(101)

(1,202)

(3)

(1,190)

(1,136)

(2.5)p

113

(1,023)

2018
£ ’000

4,613

(2,201)

2,412

(2,711)

(373)

(246)

(918)

(3)

(913)

(865)

(0.1)p

(818)

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

Financial Statements • Consolidated Statement of Financial Position

CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
For Hardide plc, company registered number 05344714
at 30 September 2019

Note

2019
£ ‘000

2018
£ ‘000

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

Provisions

Provision for onerous lease and dilapidations

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

2,745

2,844

691

1,003

277

4,809

6,780

9,624

1,351

260

1,661

5,119

164

101

265

1,926

7,698

3,673

15,987

(11,964)

274

(272)

7,698

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

The financial statements were approved and authorised for issue by the Board on 23rd January 2020.

Robert Goddard
Chairman

Financial Statements • Consolidated Statement of Cash Flows

CONSOLIDATED STATEMENT OF
CASH FLOWS
For the year ended 30 September 2019

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

Loans repaid

Net cash generated from financing activities

Effect of exchange rate fluctuations

Net increase 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

2019
£ ‘000

(1,202)

474

(392)

(266)

116

(1,128)

(3)

(1,115)

(1,106)

3,578

139

(27)

3,690

1,507

3,302

4,809

2018
£ ‘000

(918)

371

(124)

(149)

793

246

294

(3)

392

(887)

2,533

(3)

2,585

2,090

1,212

3,302

Financial Statements • Consolidated Statement of Changes in Equity

CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
For the year ended 30 September 2019

At 1 October 2017

Issue of new shares

Share options

Exchange translation

Loss for the year

Share
Capital
£ ‘000

3,242

163

Share Share-based
Payments
£ ‘000

Premium
£ ‘000

Foreign
Translation
£ ‘000

Retained
Earnings
£ ‘000

10,306

2,370

235

(432)

(10,060)

(865)

At 30 September 2018

3,405

12,676

308

(385)

(10,925)

At 1 October 2018

Issue of new shares

Share options

Exchange translation

Loss for the year

3,405

268

12,676

3,311

308

(34)

(385)

(10,925)

113

(1,136)

At 30 September 2019

3,673

15,987

274

(272)

(11,964)

Total
Equity
£ ‘000

3,291

2,533

(865)

5,079

3,579

113

(1,136)

7,698

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 2019 and applied by the Group

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

Effective date* 01 January 2020

• IFRS 3 – Business Combinations

• IAS 1 – Presentation of Financial Statements and
IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors

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

The directors are currently reviewing the effect on the
financial statements of the Group in future periods,
but expects only IFRS 16 to have any material impact.

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.

• AIP IFRS 1 First-time Adoption of International

Principal activity

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

There are no material changes or amendments to the
financial statements, nor any financial effect, arising
from the implementation of these revisions and
amendments.

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 2019

• IFRS 16 Leases

• IFRS 9 Prepayment features with negative
compensation (amendments to IFRS 9)

• IFRIC 23 – Uncertainty over income tax treatments

• Amendments resulting from Annual Improvements

(2015-2017 Cycle)

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.

Financial Statements • Notes to the Group Financial Statements

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.

Revenue shown in the Statement of Comprehensive
Income only relates to revenue recognized from
contracts with customers, and no other sources
of revenue are included. Grant income is included
as credits against administrative expenses. No
impairment losses have been recognized to any
receivable during the period.

Opening and closing balances of receivables from
contracts with customers are shown in note 12.
Hardide’s performance obligations are satisfied upon
despatch of goods from our premises. Hardide does
not have any bill-and-hold arrangements with its
customers. Our normal terms of payment are 30 days
from date of invoice although for some customers,
other terms have been agreed including End of Month
Following, and 45 and 60 days from date of invoice.
Contracts do not have financing components and
consideration is not variable.

Hardide provides a coating service for components
owned and provided by its customers, and also
sells coated components it has sourced itself.
Any component deemed by a customer as non-
conforming can be returned for rework or, in the case
of a Hardide-sourced component, replaced. Where
neither of these are possible, a credit note is raised
for the amount invoiced for the non-conforming
product. Hardide does not provide any warranties or
guarantees concerning the coating’s performance, it is
the responsibility of the customer to determine that
the coating is suitable for and has been appropriately
tested for its needs.

There are no remaining performance obligations to
be disclosed. Performance obligations are satisfied in
full upon delivery and revenue is recognised at that
point. Our terms of business are ex-works in all cases,
and delivery takes place when the goods are made
available to the customer. Transaction price allocated
to the performance obligation is fixed at the price
specified in the customer purchase order and does not
include any estimate for variable consideration, non-
cash consideration or adjustment for the time value
of money. Measurement of the obligation to rework

or replace non-conformance is not included due to
the rarity of such occurrences. There are no assets
recognised from the costs of obtaining or fulfilling
contracts with customers.

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.

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.

Financial Statements • Notes to the Group Financial Statements

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:

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.

Plant & machinery

2 to 10 years

Financial liabilities and equity

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 Cost of raw materials and direct
Finished goods

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 assets 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

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 one hundred 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.

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

Financial Statements • Notes to the Group Financial Statements

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.

Financial Statements • Notes to the Group Financial Statements

(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 18 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.

(e) The Group has made provisions for onerous lease
and dilapidations on its existing site in Wedgwood
Road Bicester. These are based on judgements and
estimates of when the premises will be vacated and
the cost of remedial work which might be required by
the landlord.

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 2019

External revenue

3,632 3,757

1,420

856

UK operation
£ ‘000
2019 2018

US operation
£ ‘000
2019 2018

Corporate
£ ‘000
2019 2018

Eliminations
£ ‘000
2018

2019

176

159

305

214

101

246

Total
£ ‘000
2018

2019

5,052 4,613

481

101

373

246

578

(513)

(803)

(1,400) (1,499)

762

859

(1,136)

(865)

Inter-segment revenue

Interest revenue

Interest expense

Depreciation

Income tax

Provision

Reportable segment
profit/(loss)

Segment assets

4,217 4,195

2,952 2,327

4,910 3,141

(2,455) (2,925)

9,624 6,729

Expenditure for
non-current assets

Segment liabilities

677

303

429

584

1,106

887

688

711

12,925 11,242

1,505 1,969

(13,192) (12,272)

1,926

1,650

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

2019

2018

UK
£ ‘000

1,660

1,759

Europe
£ ‘000

N America
£ ‘000

Rest of World
£ ‘000

3,308

2,801

Total
£ ‘000

5,052

4,613

The UK operation sells to the UK, Europe and some North American customers, while the US operation only sells
to North America. During 2019, of the £3.308m sales to North American customers, £1.888m originated from the UK
operation. All revenue is recognised at a point in time and no revenue is recognised over time.

Five external customers (2018 - four) contributed more than 10% of the Group’s continuing external sales for the year
ended 30 September 2019. The external sales for these customers were £1.146m, £0.849m, £0.817m, £0.642m and
£0.576m which have been recorded within both the UK and US operation reportable segments, excluding central costs.

Financial Statements • Notes to the Group Financial Statements

3. OPERATING PROFIT OR LOSS

This is stated after charging / (crediting):

Auditor’s remuneration:

fees payable to the Company’s current auditor for:

- the audit of the Group’s accounts

- 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 loans

Late payment penalty

2019
£ ‘000

2018
£ ‘000

1,385

472

(64)

191

481

(17)

2019
£ ‘000

1,111

401

(60)

149

371

2018
£ ‘000

Financial Statements • Notes to the Group Financial Statements

6. EMPLOYEES

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

2019
Number

2018
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

2019
£ ‘000

2,262

253

2,616

2018
£ ‘000

2,148

215

2,457

Of the total share option expense of £62,000 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 3% (2018: 2%) 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:

2019
£ ‘000

2018
£ ‘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

Accrued bonus

Salary

Pension

Accrued bonus

Salary

Accrued bonus

Fees

184

105

566

180

100

546

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

2019
£ ‘000

(56)

(54)

2018
£ ‘000

(80)

(48)

(b) Factors affecting current tax charge:
The tax assessed on the profit on ordinary activities for the year is lower than (2018: lower than) the standard rate of
corporation tax in the UK of 19% (2018: 19%)

Loss on ordinary activities before taxation

Loss on ordinary activities by rate of tax

Effect of:

Expenses not deductible for tax purposes

Deferred tax not recognised

Adjustment in respect of prior periods

Adjustment to opening / closing deferred tax

R&D enhanced expenditure

R&D surrendered

Total current tax (note 7a)

2019
£ ‘000

(1,190)

(226)

149

(67)

(54)

2018
£ ‘000

(913)

(174)

104

(3)

(96)

(48)

The standard rate of corporation tax in the UK is currently 19% (2018: 19%). The Group has unutilised trading tax
losses in the UK of approximately £3.2m (2018: £2.0m) 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.

Financial Statements • Notes to the Group Financial Statements

8. EARNINGS PER ORDINARY SHARE

(Loss) on ordinary activities after tax

Basic earnings per ordinary share:

2019
£ ‘000

(1,136)

2018
£ ‘000

(865)

Weighted average number of ordinary shares in issue

Earnings per share

46,100,981

1,661,657,670

(2.5)p

(0.1)p

As net losses were recorded in 2019 and 2018, the potentially dilutive share options are anti-dilutive for the purposes
of the loss per share calculation and their effect is therefore not considered.

Earnings per share were affected by the share consolidation described in Note 17 whereby 40 ordinary 0.1p shares
were consolidated in to 1 ordinary 4p share.

9. GOODWILL

Cost at 1 October 2018 and 30 September 2019

Net book value at 1 October 2018 and 30 September 2019

£ ‘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

Amortisation

Net book value at 30 September

2019
£ ‘000

2018
£ ‘000

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 2017

Additions

Disposals

Exchange differences

Cost at 30 September 2018

Depreciation at 1 October 2017

Provided in the year

Disposals

Exchange differences

489

513

276

Depreciation at 30 September 2018

307

Net book value at 1 October 2017

Net book value at 30 September 2018

Cost at 1 October 2018

Additions

Disposals

Exchange differences

Cost at 30 September 2019

Depreciation at 1 October 2018

Provided in the year

Disposals

Exchange differences

213

206

513

111

639

307

Depreciation at 30 September 2019

344

Net book value at 1 October 2018

Net book value at 30 September 2019

206

295

3,808

857

(45)

4,662

2,559

326

(42)

2,864

1,249

1,798

4,662

990

(43)

126

5,735

2,864

433

(37)

3,304

1,798

2,431

(12)

103

(12)

103

(6)

104

(6)

Total
£ ‘000

4,395

891

(57)

5,278

2,905

371

(54)

3,245

1,490

2,033

5,278

1,107

(49)

142

6,478

3,245

483

(43)

3,733

2,033

2,745

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

Financial Statements • Notes to the Group Financial Statements

2019
£ ‘000

2018
£ ‘000

497

127

691

991

1,003

128

134

277

3,739

779

291

4,809

6,780

143

134

286

737

749

265

2,013

973

316

3,302

4,602

Included within cash and cash equivalents is £Nil (2018: £500,000) 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

2019
£ ‘000

656

296

(1)

991

A total of £335,000 (2018: £272,000) trade receivables are over 30 days old and therefore overdue.

13. CURRENT LIABILITIES

Trade payables

Taxation and social security costs

Accruals

Lease incentives

Loans

Total current liabilities

2019
£ ‘000

969

302

1,401

2018
£ ‘000

465

254

(2)

737

2018
£ ‘000

1,055

228

1,346

The Group entered in to a loan agreement with Martinsville Henry County Economic Development Corporation for
a 5 year term loan of $240,000 (£195,000) to be drawn down in instalments coinciding with the stage payments on
the third chemical vapour deposition reactor installed in our Martinsville facility. The final instalment was received
in February 2019. The interest rate on the loan is fixed at 2% over the term, repayments are due quarterly and
commenced in March 2019. The loan is secured against the reactor and Hardide plc has acted as guarantor.

Financial Statements • Notes to the Group Financial Statements

14. PROVISIONS

Provisions bought forward

Provisions utilised

Provisions charged

Effect of movements in exchange rates

Provisions carried forward

Provision for grant repayment

Provision for onerous lease

Provision for dilapidations

2019
£ ‘000

246

101

361

2019
£ ‘000

260

361

2018
£ ‘000

246

2018
£ ‘000

246

During 2015 and 2016 the Group received a total of $320,000 (£260,000) 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 date on one of the grants worth $150,000.

During the current financial year Hardide Coatings Limited entered in to a lease on new premises in Bicester. These
are currently being fitted out and it is anticipated relocation will begin from March 2020. The Directors have made a
provision for rent payable from the completion of the relocation until the end of the lease on its current premises in
October 2021, as well as a reasonable estimate of dilapidation costs, totalling £101,000 (2018:nil).

15. NON-CURRENT OTHER FINANCIAL LIABILITIES

Lease incentives

Loans

2019
£ ‘000

129

164

2018
£ ‘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

2019
£ ‘000

2018
£ ‘000

2019
£ ‘000

2018
£ ‘000

333

1,066

1,781

3,180

151

429

670

Financial Statements • Notes to the Group Financial Statements

17. SHARE CAPITAL

Allotted ordinary shares of 4p each

Allotted ordinary shares of 0.1p each

Allotted deferred shares of 0.9p each

2019

2018

Number

Value
000 £ ‘000

Number

Value
000 £ ‘000

49,146

1,966

1,698,077

1,698

189,642

1,707

189,642

1,707

During the year, the Company consolidated its ordinary 0.1p shares in to ordinary 4p shares in the ratio of 40:1. At
the same time it raised £3,600,000 before expenses (£3,451,000 net of commission, legal fees and expenses) by way
of placing 6,000,002 ordinary 4p shares at a price of 60p per share. Also during the year 693,775 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 2018

Exercisable at 30 September 2018

Granted during year

Exercised during year

Lapsed during year

Outstanding at 30 September 2019

Exercisable at 30 September 2019

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

3,045,615

1,751,865

25,000

693,775

1,150,000

1,226,840

1,176,840

Number

87,500

500,000

12,500

Weighted average
exercise price

32.4p

29.6p

48.5p

18.3p

33.4p

39.5p

38.6p

Weighted average
exercise price

24.0p

32.4p

34.4p

During the year no options were awarded to directors. The following options were exercised by directors:

Robert Goddard (Chairman)

Yuri Zhuk (Technical Director)

Peter Davenport (Finance Director)

Number

167,025

208,775

Weighted average
exercise price

18.0p

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 0.88%, and an
expected life of 4 years. The average calculated fair value of options granted during the year was 18.4p per share.

Financial Statements • Notes to the Group Financial Statements

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 2019 the weighted average remaining contractual life of all outstanding options was 4 years and 5
months (2018: 5 years and 4 months).

The total charge to the income statement for share options during the year was £62,000 (2018: £73,000).

19. POST BALANCE SHEET EVENTS

There were no post balance sheet events to report.

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 $409,000 (£332,000)
for the purchase of equipment (2018: £63,000). Hardide Coatings Ltd had capital commitments of £1,574,000 for the
purchase of equipment and £1,107,000 for leasehold improvements.

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 2019 the Group had trade receivables
and other receivables of £1,003,000 (2018: £749,000) and cash deposits of £4,809,000 (2018: £3,302,000).

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 2019 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 gain of £17,000 (2018: £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 2019, the Group had no floating rate borrowings, and all its cash deposits were in floating rate
accounts.

Financial Statements • Parent Company Statement of Financial Position

PARENT COMPANY STATEMENT OF
FINANCIAL POSITION
For Hardide plc, company registered number 05344714
At 30 September 2019

Note

2019
£ ‘000

2018
£ ‘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

1,218

11,886

(11,886)

1,218

163

3,530

3,693

4,911

1,505

2,188

1,505

3,406

3,673

15,987

(16,528)

274

3,406

1,198

10,461

(10,461)

1,198

113

1,830

1,943

3,141

1,969

(26)

1,969

1,172

3,405

12,676

(15,217)

308

1,172

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 £1,400,000 (2018: loss of £1,499,000) after
accounting for an increase in the provision against the intercompany loan of £1,425,000 and an exchange rate gain on
intercompany loan of £663,000.

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

The financial statements were approved and authorised for issue by the Board on 23rd January 2020.

Robert Goddard
Director

Financial Statements • Parent Company Statement of Cash Flows

PARENT COMPANY STATEMENT OF
CASH FLOWS
For the year ended 30 September 2019

2019
£ ‘000

2018
£ ‘000

Cash flows from operating activities

Operating (loss)

Share option charge

Decrease in receivables

Increase 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 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

(707)

(638)

(624)

(1,254)

3,578

1,700

1,830

3,530

PARENT COMPANY STATEMENT OF
CHANGES IN EQUITY
For the year ended 30 September 2019

At 1 October 2017

Issue of new shares

Share options

Loss for the year

Share
Capital
£ ‘000

3,242

163

Share Share-based
Payments
£ ‘000

Premium
£ ‘000

Retained
Earnings
£ ‘000

10,306

2,370

235

(13,718)

(1,499)

At 30 September 2018

3,405

12,676

308

(15,217)

At 1 October 2018

Issue of new shares

Share options

Loss for the year

3,405

12,676

240

3,211

100

At 30 September 2019

3,673

15,987

308

(34)

274

(15,217)

(1,400)

(16,528)

(699)

(617)

(518)

(935)

2,533

1,080

750

1,830

Total
Equity
£ ‘000

2,533

(1,499)

1,172

3,451

(1,311)

3,406

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:

2019
Number

2018
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

2019
£ ‘000

724

869

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

3. INVESTMENTS

Investments in subsidiaries

2019
£ ‘000

1,218

2018
£ ‘000

622

753

2018
£ ‘000

1,198

At 30 September 2019 the company held 100% of the share capital of the following subsidiaries:

Hardide Coatings Limited

Hardide Coatings, Inc

Hardide Aerospace Coatings Limited

Ordinary

100%

USA

Surface engineering

Class of share

Amount

Country

Nature of business

4. AMOUNTS OWED BY GROUP UNDERTAKINGS

The amounts owed by Hardide Coatings Inc amounting to £11,886,000 (2018: £10,461,000) 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 £1,425,000 (2018: £1,131,000) has been debited to the profit and loss account in
the year.

5. TRADE AND OTHER RECEIVABLES

Prepayments and accrued income

2019
£ ‘000

163

2018
£ ‘000

113

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

2019
£ ‘000

1,320

104

1,505

2018
£ ‘000

1,811

108

1,969

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 £491,000. 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 4p each

Allotted ordinary shares of 0.1p each

Allotted deferred shares of 0.9p each

2019

2018

Number

Value
000 £ ‘000

Number
000

Value
£ ‘000

49,146

1,966

1,698,077

1,535

189,642

1,707

189,642

1,707

Details of the movement in share capital can be found in note 17 to the Group financial statements.

8. CAPITAL COMMITMENTS

The company has no capital commitments at 30 September 2019 or 30 September 2018.

9. CONTINGENT LIABILITIES

There were no contingent liabilities at 30 September 2019 or 30 September 2018.

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

2019

2018

With
Hardide

With
Hardide
Coatings Ltd Coatings Inc
£ ‘000

£ ‘000

With
Hardide
Coatings Ltd
£ ‘000

With
Hardide
Coatings Inc
£ ‘000

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

167

(89)

363

762

127

(151)

376

(261)

764

Balance outstanding at 30 September

(1,320)

11,886

(1,811)

10,461

11. POST BALANCE SHEET EVENTS

There are no post balance sheet events to report

12. FINANCIAL INSTRUMENTS

The financial instruments risk management is disclosed in note 23 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 2019

DIRECTORS AND ADVISERS

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

Hardide surface engineering technology

patented, low temperature CVD (chemical

transforms the way that parts perform under

vapour deposition) coatings which provide

severe service conditions. Previously, levels

exceptional wear and corrosion resistance

of friction, abrasion and aggressive chemical

and uniquely combine extreme toughness

attack have led to part failure, downtime

with ductility. Our coatings are ‘value-

and extreme cost. Our coatings are enabling

adding’ to components and lower operational

customers in high wear/high value industries

costs by reducing downtime, increasing

including oil and gas drilling and production,

productivity and improving performance.

aerospace, flow control, power generation

They can be precision applied to external

and precision engineering to optimise part

and internal surfaces including complex

life, improve product performance and make

geometries, enabling a level of engineering

significant operating cost savings. The Group

design flexibility not possible with alternative

has manufacturing facilities in Oxfordshire, UK

technologies.

and Virginia, USA.

DIRECTORS

AUDITOR

JOINT BROKERS

BANKER

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

Secretary
P Davenport

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

finnCap
60 New Broad Street
London
EC2M 1JJ

Royal Bank of Scotland
Dale Street
Liverpool
L2 2PP

Allenby Capital Limited
5 St Helen’s Place
London
EC3A 6AB

NOMINATED
ADVISER

finnCap
60 New Broad Street
London
EC2M 1JJ

REGISTRAR

PATENT AGENT

REGISTERED OFFICE
AND PRINCIPAL PLACE
OF BUSINESS

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

Harrison Goddard Foote
Belgrave Hall
Belgrave Street
Leeds
LS2 8DD

Hardide plc
11 Wedgwood Road
Bicester
Oxon
OX26 4UL

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ANNUAL REPORT2019www.hardide.com