www.hardide.com
© 2020 Hardide plc
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ANNUAL REPORT 2020
HARDIDE PLC ANNUAL REPORT 2020
Hardide plc is the leading global innovator and provider
of advanced tungsten carbide coatings that significantly
increase the working life of critical metal components
operating in abrasive, erosive, corrosive and chemically
aggressive environments.
Hardide® is a family of nanostructured
and patented, low temperature CVD
(chemical vapour deposition) coatings
which provide exceptional wear and
corrosion resistance and uniquely
combine extreme toughness with
ductility. Our coatings are ‘value-adding’
to components and lower operational
costs by reducing downtime, increasing
productivity and improving performance.
They can be precision applied to
external and internal surfaces including
complex geometries, enabling a level of
engineering design flexibility not possible
with alternative technologies.
Hardide surface engineering technology
transforms the way that parts perform
under severe service conditions.
Previously, levels of friction, abrasion and
aggressive chemical attack have led to
part failure, downtime and extreme cost.
Our coatings are enabling customers in
high wear/high value industries including
energy, aerospace, flow control, power
generation and precision engineering
to optimise part life, improve product
performance and make significant
operating cost savings. The Group has
manufacturing facilities in Oxfordshire, UK
and Virginia, USA.
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CONTENTS
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
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6
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Strategic Report / Key Points
FINANCIAL HIGHLIGHTS
“
Robust results in
challenging conditions.
£4.8m
£2.3m
Revenue of £4.8m (FY2019: £5.1m)
Gross profit of £2.3m (FY2019: £2.4m)
49%
Gross margin of 49% (FY2019: 48%)
£2.5m
Over-subscribed fundraising of
£2.5m (before expenses) to fund
additional equipment, enhance
new UK site at Longlands Road,
Bicester and strengthen the
balance sheet.
(£0.5m)
Reduced EBITDA loss of £0.5m
before exceptional items, including
£0.2m of costs relating to site
relocation (FY2019: loss before
exceptional items £0.6m). The
beneficial impact on EBITDA this
year of applying IFRS 16 is £0.4m
(after IFRS 16, like for like FY2019
EBITDA loss of £0.4m).
£2.7m
Cash at bank at 30 September
2020 of £2.7m (FY2019: £4.8m)
Strategic Report / Key Points
5
BUSINESS & OPERATIONAL HIGHLIGHTS
TRADING
▪ Revenue was only 6% below FY2019 with increased revenue across all sectors other than
oil & gas, which was adversely affected in H2 due to the slowdown of the global economy
resulting from the COVID-19 pandemic
- Sales to the energy sector down 14%. Parts for the delayed major oil and gas project order
were received post period in October 2020
- 9% increase in sales to the flow control sector
-
19% increase in sales to the aerospace sector
- 4% increase in sales to the precision engineering sector
- 56% increase in sales of coated industrial diamonds
- Revenue from UK and North American customers were each 49% of total Group sales
(FY2019: UK 35%, North America 65%)
- Revenue from Martinsville facility up 10% compared to FY2019, totaling 33% of Group sales
▪ Honoured with Queen’s Award for Enterprise: International Trade 2020 in recognition of the
outstanding growth of international sales
STRATEGIC
▪ Relocation of UK operations to new site completed on time and within projected cost
▪ Two new coating reactors installed in UK including one large reactor, and one new reactor in
the US. The Group now has nine operational reactors compared with six at the end of 2019
▪ Airbus production orders being received for the A380 wing compression flap pads. Coating of
components for the Lockheed Martin F-35 Lightning II Joint Strike Fighter continues
▪ Long-term test programmes with our new coating for steam and gas turbine blades progressing
well
▪ Major environmental improvements due to the new site and production processes
▪ Good progress in developing new opportunities in low or carbon-neutral energy technology
with production orders received.
TECHNOLOGY
▪ Successfully completed two National Aerospace Technology Exploitation Programme (NATEP)
grant funded projects on a new ultra-low temperature coating for aerospace metals, which is
now in late stages of development before being commercially available
▪ UK Intellectual Property Office granted a patent on the further-enhanced Hardide coating
and its new applications, including turbine blades. National phase patenting has started in 10
leading industrial countries
▪ Validation began in nine countries of a European patent application for alloyed tungsten
produced by chemical vapour deposition
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Strategic Report / Chairman's and CEO's Report
CHAIRMAN’S AND
CEO’S REPORT
INTRODUCTION
The Group is pleased to report full year
sales of £4.8m (FY2019: £5.1m); down by
just 6% on the last year. The strong first
half continued into the start of H2 until
the disruption in our customers’ markets
caused by the COVID-19 pandemic began
to dampen their demand. After this
promising start to H2, revenues overall
were badly affected by lower sales to oil
& gas customers. The Group’s efforts to
reduce further its dependence on industry
sectors and particular customers, protected
it from an even more severe exposure to
the downturn. Sales to all other market
sectors increased in the year; as did sales
for the coating of several specialist oil & gas
products, including those for subsea and
sand filtration.
In January 2020, the Group completed an over-
subscribed fundraising of £2.5m (before expenses).
This was to fund completion of the new UK site,
additional equipment and strengthen the balance
sheet. At about the same time, Finance Director Peter
Davenport announced his intention to leave the Group
to pursue a career in education. The Board was sad to
see Peter leave and thanks him for his diligence and
important contribution to the growth and health of the
Group over the years. Simon Hallam was appointed
as Finance Director in April 2020. Very quickly, he
has familiarised himself with Hardide and is making
valuable contributions. We were also sorry in August
2020 to lose Charles Irving-Swift as non-executive
director and thank him also for his contributions to
the Board. Tim Rice has taken over the role of senior
independent director.
One of the highlights of the year has been the smooth
transition of UK production to the new Longlands Road
site in Bicester and the addition of a bigger reactor.
This will enable the coating of larger components.
During August 2020, the new 20,000 sq. ft. site
became fully operational. One reactor will remain in
the former premises to coat aerospace components
until Airbus completes its approval process of the new
site, which is expected to conclude in spring 2021.
In April 2020, the Group was proud to be honoured
with a Queen’s Award for Enterprise: International
Trade. This was in recognition of the outstanding
growth in international sales, which increased by 152%
over a three year period. In the year to 30 September
2020, international sales accounted for 51% of
revenues.
Strategic Report / Chairman's and CEO's Report
7
“
A modern, high-tech and efficient
production environment that
enhances our levels of environmental
and energy efficiency.
8
Strategic Report / Chairman's and CEO's Report
COVID-19
The Group’s facilities in Bicester and Martinsville
continue to operate as normal throughout the
COVID-19 pandemic, with considerable emphasis being
placed on health and safety measures to protect
staff and contractors. The Group has followed official
guidelines in the places where we operate and has
supported remote working where possible.
The pandemic has brought considerable disruption to
our key markets of oil & gas, and aerospace. We have
remained close to our customers during this time. So,
as the global economy and as our markets adjust to
the new normal, we are confident that higher demand
will return. The pandemic also paused a number of
customers’ R&D and test programmes; although we
are beginning to see some of these being resumed.
In the UK, where it was operationally appropriate to do
so, the Group utilised the Government’s Coronavirus
Job Retention Schemes to match our workforce
to demand and protect employment. In the US, we
applied successfully for funds from the US Small
Business Association’s ‘Paycheck Protection Program’.
FINANCIAL RESULTS
The Group generated sales of £4.8m in the year ended
30 September 2020 (FY2019: £5.1m), despite the
difficult economic conditions over the second half of
the year caused by COVID-19.
Direct costs, including production salaries, decreased
by 8% which was attributable to the 6% reduction in
sales.
Group gross profit was £2.3m (FY2019: £2.4m). Despite
the lower revenue, gross margin improved by 1% to
49% (FY2019: 48%).
Overhead costs excluding those related to the new
premises decreased by 6%. This was due to the receipt
of £121k grant income from the National Aerospace
Technology Exploitation Programme (NATEP), and also
support from the US Small Business Association’s
Paycheck Protection Program amounting to US$200k.
This loan is ‘forgiven’ and does not have to be repaid
as long as certain conditions are met. The Group
believes those conditions have been met and have
released this amount to the income statement.
Before exceptional items, the Group’s EBITDA loss
was £0.5m, and included £0.2m of costs relating to
relocation to the new building in Bicester (FY2019:
£0.6m loss before exceptional items). The Group
adopted IFRS 16 with effect from 1 October 2019
and has applied the standard using the modified
retrospective approach. Comparative information
has not been restated and is therefore still reported
under IAS 17 'Leases' and related interpretations. The
beneficial impact on EBITDA in FY2020 of applying
IFRS 16 is £0.4m. After IFRS 16 adjustments, like for
like EBITDA loss in FY2019 would be £0.4m.
Strategic Report / Chairman's and CEO's Report
9
Group EBITDA in the first half was breakeven, and a
£0.5m loss in the second half reflects the impact that
COVID-19 has had, particularly over the last quarter of
financial year.
This is being amortised to the income statement in
line with the remaining life of the reactor which was
installed at Martinsville in December 2018, for which
the loan was originally made.
The Group has successfully negotiated a further
six-month rent holiday for its lease payments on
the Longlands Road building with effect from 28
September 2020, which will have a cash benefit
of c.£90k in FY2021. It has also negotiated a 30%
reduction in lease payments on the Wedgwood Road
premises from January 2021, giving a cash benefit of
c.£23k in FY2021. The lease on the Wedgwood Road
premises terminates in October 2021.
The only borrowing at the year-end was the asset
finance agreement with Hitachi Capital of £0.4m
against a new coating reactor. In addition, in February
2021 the Group obtained a CBILS loan for £0.25m.
This is repayable over six years, and is interest and
repayment-free in the first year.
During the year, the Group repaid US$116k of the
original US$170k grant from the Virginia Tobacco
Commission. As this had been fully provided for, a
release of US$54k has been made to exceptional
items. The Martinsville-Henry County Economic
Development Corporation in Virginia has converted the
outstanding value of their loan of US$182k to a grant,
with the Group released from all obligations under
the loan agreement, with no further repayments due.
A provision of US$150k created in FY2019 remains
in place for the likely full repayment of the State of
Virginia’s Commonwealth Opportunity Fund grant. This
is because the Company has not created the required
number of jobs in Martinsville. Repayment has now
been scheduled in two equal amounts on 31 March
and 30 June 2021.
On the balance sheet, net assets at 30 September
2020 were £8.8m (FY2019: £7.7m). This included a
cash balance of £2.7m (FY2019: £4.8m). The reduction
from 2019 was due mainly to the investment in new
plant and equipment, and generally in the Longlands
Road facility. There remains c.£0.3m committed for
completion of the relocation project. Other working
capital balances have reduced overall by £0.2m, with
the main factors being a reduction in inventory levels
and lower trade debtors caused by the lower activity
levels over the final quarter.
The Board believes that its cash reserves will be
sufficient for forecast requirements; especially now
that on the 1st February 2021, the Group secured
additional funds of c.£1.0m comprising a fundraise of
c.£0.75m net of expenses and a CBILS loan of £0.25m.
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Strategic Report / Chairman's and CEO's Report
OPERATIONAL OVERVIEW
Customers and Markets
Revenue from aerospace customers increased by 19%,
flow control by 9% and precision engineering by 4%. In
flow control, sales rose to one of our longest standing
and largest US customers as they used Hardide-
coated parts in new applications, including pumps for
medical sanitisers.
Aerospace
An increase in aerospace sales was due largely to
demand for military aircraft, especially for BAE
Systems’ Typhoon and Lockheed Martin’s F35
Joint Strike Fighter. Intense work on approvals
has continued jointly with Airbus and their Tier 1
suppliers throughout the year. We were delighted to
receive our first production orders from Airbus for
the A380 and Beluga transporter aircraft. Hardide-
coated compression flap pads are now specified
as maintenance replacements on the substantial
in-service A380 fleet and regular, long-term orders
are expected. The coating has been approved for
specific wing components on the Airbus A320 and
A321XLR aircraft and the Group is in various stages
of testing and approval on parts for the A320, A321,
A321XLR, A330, A400M aircraft and the Airbus ‘Wing
of the Future’ programme. Regular production orders
for coating A330/A320 components are expected to
commence in H2 2021.
We had expected production orders from a large
European MRO (maintenance, repair and overhaul)
organisation for the Airbus A320 during the financial
year. These components are subject to a performance
evaluation of the Hardide coating after flying,
apparently successfully, for more than 4,000 hours.
The pandemic has delayed final evaluation of these
parts but is expected to be finalised in the coming
months. One of our strategic objectives is to develop
further our sales into the global MRO market.
Regular orders for military aircraft are being received
for the coating of components on the Lockheed Martin
F-35 Lightning II Joint Strike Fighter (JSF) and BAE
Systems’ Eurofighter Typhoon. Hardide-A has been
selected to replace HVOF (high velocity oxy-fuel)
thermal spray coatings on the JSF components. In
addition to the JSF, we are working on several other
aerospace projects where HVOF coatings may be
replaced by Hardide-A.
Together with Leonardo Helicopters, we developed
a number of coating techniques for innovative parts
used in transmission and rotor head systems to
reduce in-service costs and extend component life.
Final testing of Hardide-coated parts in a transmission
assembly was further delayed but is expected to get
underway in early 2021.
Multiple test programmes are in progress with OEMs
(original equipment manufacturers) and Tier 1 suppliers
for a range of civil and military aircraft applications.
Other development work for European and North
American aerospace companies continues.
Aerospace is a major strategic market for the Group
and we see significant opportunities in the MRO
industry, as well as with OEMs. In July 2020 we
strengthened our aerospace business development
team with the appointment of a highly-knowledgeable
and well-connected manager who has 17 years’
experience in the long-term development of global
aerospace markets in the UK, EU and Asia Pacific.
The Group continues to develop digital engagement
with webinars, virtual meetings, conferences and
exhibitions. We provided video presentations for the
2020 Farnborough Virtual Airshow and continue to
develop and roll out innovative approaches during
the COVID-19 restrictions, ensuring continued
communication with our existing and new customers.
Energy
The financial year started strongly, with growing
demand from oil and gas customers and H1 sales
up 30% from H1 2019. When the pandemic began to
take hold in March 2020, demand was not affected
immediately. Instead, the effects of the lockdown
became evident after a few months with order book
delays notified to the market in July 2020. Overall
sales in the year to oil & gas customers were 14% lower
than FY2019. Though volume orders from some major
oilfield customers were depressed in the second half,
a number of oil & gas applications have proven resilient
and revenues from them have grown throughout
the year. Also, demand for the coating of industrial
diamonds for oil & gas customers rose 56% compared
to FY2019, although heavily weighted towards H1.
Parts for the large, delayed oil and gas project order
originally expected in H2 2019, were received early in
H1 2020.
Forecasts of demand from our oil & gas customers
remain unavailable. However, we are confident that as
the global economy recovers, demand for Hardide-
coated products in this sector will return and continue
on its previous upward trajectory.
We are encouraged by the high number of new oil
and gas applications that we have in development
and in test programmes. In particular, these include
the coating of mesh and wire-wrap screens for sand
filtration. The Hardide coating is ideally suited to
this highly abrasive application, which requires the
complete coating of very complex layers of interwoven
mesh. Also, there are multiple applications beyond
the oil and gas sector for this technology that we are
developing with specialist manufacturers of filters.
Renewables
The Board is mindful of the wider global move towards
the use of energy derived from non-fossil fuels, and
the shift towards a low-carbon and renewable energy
future being taken by the major oil & gas companies
and other users of our products. Looking beyond
the current downturn, we see renewable and clean
energy technologies forming an increasing part of
our revenue portfolio. Already, Hardide coating is
being incorporated into the production process of a
solar energy company in Europe, from where we now
receive regular orders.
Also, we are making excellent progress on a fast-track
test programme with a very substantial, blue-chip,
clean energy company in the USA.
Power Generation and Precision Engineering
The Group is now working with six power generation
companies in the UK and Europe on our long-term
project to commercialise the recently-patented
coating for blades and vanes used in power generation
Strategic Report / Chairman's and CEO's Report
11
turbines. Product testing is at an advanced stage
with EDF Energy who plan in 2021 to have coated a
number of blades to field test in a power station in
2022. Meanwhile, we are at various stages of testing
for both steam and gas turbines with five other power
generation customers.
Demand for our coated components in high speed
X-ray baggage screening machines has been
maintained at previous levels.
Marketing Communications
Our plans to exhibit and make technical presentations
at both the Singapore and Farnborough International
Airshows, as well as at several other international
exhibitions and conferences, were prevented by the
pandemic. In response, we shifted our focus online
and participated virtually wherever this was an option.
We increased our digital marketing activities, and
made comprehensive use of all traditional and social
media channels to connect with potential customers
and make new contacts. In May 2020, we launched
our redesigned and responsive website with refreshed
content and enhanced functionality for technical users
and investors. The site is updated regularly and we
know through web analytics that it is used heavily as a
resource for information on Hardide coatings’ technical
data. It is also a good source of leads and provides us
with feedback on the information that most interests
current and prospective users of Hardide coatings.
Production, Technology, Environment,
Research & Development and Accreditations
The new Longlands Road site in Bicester was fully
operational from August 2020. It was completed
on time and within projected cost. The move has
provided the Group with a modern, high-tech and
efficient production environment that enhances our
levels of environmental and energy efficiency. Energy-
efficient LED lighting has been installed throughout
the building, which itself is very thermally efficient.
During cold periods, process heat from the reactors
is fed back into the work areas, thereby reducing the
need for space heating.
Hardide has always been environmentally superior
to other hard coating technologies but now, the new
production and filtration equipment improves further
the environmental performance of our processes. The
investment in new component cleaning equipment has
almost eliminated the consumption of volatile organic
compounds (VOCs) used in the cleaning of incoming
components. Additionally, all gaseous by-products
from the production processes are comprehensively
neutralised and cleaned, so ensuring clean discharges
to atmosphere. Holding tanks have been installed that
have eliminated any unverified discharge of liquid by-
products into the drains.
Further significant reduction of the Group’s overall
carbon footprint has been achieved by having a US
coatings facility. Previously, all products coated for
North American customers were airfreighted to the UK
and back again to the customer.
Three new coating reactors were installed during
the year, two in the UK and one in the US, bringing
the total in the Group to nine. The UK’s new larger
reactor was commissioned in September 2020. This,
together with the new large pre-treatment line and
cleaning machine means the process size capabilities
are expanded by a third and can now accommodate
components up to 1.5 metres long. We have run
successfully the first parts through the new reactor
and expect to secure additional applications in the
power generation, aerospace and oil & gas sectors
based on our increased capabilities.
Completed successfully were two projects to apply
the new, ultra-low temperature coating to additional
metal types in the aerospace sector and for its
subsequent machining. Funded by the National
Aerospace Technology Exploitation Programme
(NATEP), the work was carried out in collaboration
with Airbus, Leonardo Helicopters and other industry
partners, and further enhanced our technical
credentials with these customers. This coating is now
in the late stages of development before being made
commercially available.
Before the COVID lockdown, our Technical Director
participated in a delegation to South Korea that was
sponsored by Innovate UK. This was a strategically
significant and productive project – several potential
customers were identified, as was a very suitable
potential agent to represent Hardide. Following
the visit, coated samples were supplied for four
applications and these are now being tested by
customers in South Korea.
The Longlands Road site has been certified to
environmental standard ISO14001 and aerospace
quality management system AS9100D/ISO9001.
The former Bicester site retains Nadcap (National
Aerospace and Defense Contractors Accreditation
Program) ‘Merit’ Status and planning is underway
for Nadcap accreditation at Longlands Road site.
Aerospace production will continue at Wedgwood
Road until Airbus approves the new site, expected in
spring 2021. Plans to progress Nadcap accreditation
and Airbus approval at the US site are delayed until
international travel restrictions are lifted.
End of the EU/UK Transition Period
Although the Group has a low level of transactions
with EU countries, we evaluated the risks across
all aspects of the business. We are in dialogue with
our EU based suppliers of key raw materials and are
experiencing no disruption. Nevertheless, during 2020
we took precautions and built stocks of key materials
in the UK. Almost all our customers’ components
arrive from within the UK or by airfreight from North
America. There are currently very few customers’
products that travel to or from the EU. All of our staff
who are EU nationals have received Settled Status,
ensuring no personnel difficulties. We continue to keep
abreast of developments and advice from Government
and industry bodies.
Intellectual Property
In October 2019, the UK Intellectual Property Office
granted a patent on the further-enhanced Hardide
coating and its new applications, particularly in
power generation. In 2020, patenting started in 10
leading industrial countries. This is an important
achievement that strengthens the Group’s IP portfolio.
Fundamental research continues into the development
of new coating variants and applications are regularly
evaluated for patentability.
12
Strategic Report / Chairman's and CEO's Report
STRATEGY
EMPLOYEES AND STAKEHOLDERS
Hardide is a ‘technology development’ company in
which increasing numbers of customers and types of
application are proving the worth and robustness of
the technology; thereby giving rise to increasing sales
in a wide spectrum of industries, and ultimately to
high, growing and more-consistent profits.
The Group’s high operational gearing has been
demonstrated previously by an improvement in
EBITDA markedly faster than the rate of increase
in sales, albeit the upward trajectory of sales has
been set back temporarily by the pandemic induced
decrease in demand. Accordingly, high growth in
shareholder value demands continued investment in
business development, marketing and technological
progress - not on reducing costs.
There are considerable benefits to end-users in using
Hardide coatings. Such benefits include longer working
life of the component and reduced maintenance costs.
In many cases it also gives the customer a significant
competitive advantage.
There exist strong barriers to entry into Hardide’s
markets. Foremost among these are a continuously-
refreshed patent portfolio and the skills embedded
among our staff. Almost as important is the fact
that our coating is used often in mission-critical or
safety-critical applications, or both. This means that
potential customers very often have rigorous approval
processes that can last many years.
The Group is making further progress with its
successful efforts to diversify and increase its number
of customers and target industries, and will continue
to do this. In the short-term regular demand from
Airbus is expected to commence soon, and the coating
of turbine blades for power generation is a realistic
medium-term target that has good profit potential.
Also in prospect are exciting short- and medium-term
opportunities with customers in the renewable energy
sector and new applications in oil & gas.
The Company will seek out and develop further
opportunities for partnering with end-users of
the technology and by this means achieve further
technical success and additional revenue.
The Board retains its positive view of Hardide's
potential for profitable growth. Although not profit
maximising in the very short-term, investment
in further marketing, business development, and
research & development will continue.
The Board must thank our employees for their loyalty,
commitment, flexibility and hard work. During this
most uncertain of times they have worked tirelessly to
ensure that the site relocation project was delivered
seamlessly and with no interruption in supply to
customers, or any reduction in product quality.
Production, technical and laboratory equipment was
transferred with minimal disruption, and our quality
and environmental processes were established at
the new site, both on time and efficiently. The Board
recognises the hard work and planning that went into
achieving this, and that it was further complicated by
the disruptive effects of the COVID-19 pandemic on
contractor availability and normal ways of working.
The Board also extends its thanks to shareholders and
other stakeholders for their continued support and
confidence in the future of our business.
OUTLOOK
The Board remains optimistic and positive about the
longer-term growth of Hardide and is committed to
the strategy of continued diversification into resilient,
emerging and high-volume markets, while at the same
time developing our existing high margin markets,
where we have proven performance.
The short-term outlook is more difficult to predict
as our customers lack firmer forecasts for their
own businesses. However, there are good grounds
for optimism. The latest market forecasts, together
with a higher number of working oil and gas rigs, and
the higher oil price, indicate a good recovery in oil
demand and production in 2021 and 2022. The Board
is confident that, as the global economy recovers and
new customers and applications come on stream,
demand for Hardide’s products will grow significantly
and continue on its previous strong upward
trajectory. We believe that Hardide has a strong and
sustainable strategy and business model; and that
financial performance will benefit from our very high
operational gearing as revenues recover.
Robert Goddard
Chairman
Philip Kirkham
CEO
18 February 2021
18 February 2021
Strategic Report / Chairman's and CEO's Report
13
“
Three new coating
reactors were installed
during the year, two in
the UK and one in the
US, bringing the total
in the Group to nine.
14
Strategic Report / Chairman's and CEO's Report
Strategic Report / Chairman's and CEO's Report
15
“
New component cleaning
equipment has almost
eliminated the consumption
of volatile organic compounds
(VOCs) used in the cleaning
of incoming components.
16
Strategic Report / Financial Review
FINANCIAL REVIEW
STATEMENT OF COMPREHENSIVE INCOME
STATEMENT OF FINANCIAL POSITION
Sales revenue for the year reduced by 5.9% to £4.76m,
down from £5.05m in the prior year. Record sales in
the first half of the year of £3.02m (H1 2019: £2.35m)
reduced to £1.74m in the second half (H2 2019: £2.70m)
as Covid-19 adversely affected the oil & gas market in
particular.
With production salaries a relatively fixed cost, the
increased sales in H1 delivered gross margins of 55%
in H1. But with the reduction in sales in H2, this was
also a factor in gross margins over this period falling to
38%. Overall gross margin for the year was 49% (2019:
48%).
Costs of sales fell by 7.6% to £2.44m (2019: £2.64m),
reflecting the reduction in variable costs, primarily
the principal gas used in the production process, as a
consequence of the lower sales for the year.
Administrative expenses reduced by 5.8% to £2.86m
(2019: £3.04m). This was down to the receipt of £121k
grant income (2019: £64k) from the National Aerospace
Technology Exploitation Programme (NATEP), and also
support from the US Small Business Association’s
Paycheck Protection Program amounting to US$200k.
The Group’s depreciation charge on owned assets was
£477k, at a similar level to the previous year (£481k).
Depreciation on the investment in the new site and
equipment was negligible in the year as relocation and
then full production did not commence until towards
the end of the financial year. The Group also adopted
IFRS 16 from 1st October 2019 using the modified
transitional approach, which resulted in depreciation
on ‘right-of-use’ assets of £288k in the year, and
finance costs on right-of-use assets of £91k. We also
made an estimate of £50k in respect of dilapidation
costs, which might occur on the new site at the end of
the 15 year lease period.
The Group loss before interest, tax, depreciation
and amortisation (EBITDA) for the year amounted to
£0.54m (2019: £0.62m). The Group broke even in H1
(2019 H1: £0.44m loss) on the back of the record sales
over this period, and so consequently all of this loss
is attributed to H2 (2019 H2: £0.18m loss). This also
included £0.16m of costs incurred for the new site. Our
Martinsville facility increased sales by 12.5% from 2019,
and as a consequence achieved an EBITDA profit, even
before taking into account the impact of IFRS 16.
Non-current assets increased by £5.74m during the
year. This is net of the £477k depreciation charge
on owned assets and £288k on right of use assets.
The main factor was the adoption of IFRS 16 which
transitioned £2.42m right-of-use assets onto the
balance sheet. In addition, £4.17m was invested in the
new site, as well as in new fixtures and equipment, as
part of the relocation project.
Inventories were £565k (2019: £691k), a reduction of
£126k. The previous year’s inventory included the
impact of receiving a significant quantity of our key
process gas in the USA shortly before the year end
which was being offered by a supplier at a significant
discount to our usual price. This has been utilised
substantially over the year. Trade and other receivables
fell by £517k compared to 2019 due to the slow-down
in sales in H2, but in particular the final quarter.
During the year, the Group repaid US$116k of the
original US$170k grant from the Virginia Tobacco
Commission. As this had been fully provided for, a
release of US$54k was made to exceptional items. The
Martinsville-Henry County Economic Development
Corporation in Virginia also converted the outstanding
value of their loan of US$182k to a grant and released
the Group from all obligations under the loan
agreement, with no further repayments due. This is
being amortised over the life of the reactor which the
original loan was used to finance.
In January 2020, The Group completed a fundraising
which raised £2.5m (£2.35m net of expenses). This
was to fund the completion of the new site in Bicester,
invest in new equipment including additional reactors,
and strengthen the balance sheet. Subsequent to the
year end, in February 2021 the Group raised £1.0m,
net of expenses, through a combination of equity
fundraising and a Coronavirus Business Interruption
Loan Scheme.
Cash balances at the end of the year were £2.72m
(2019: £4.81m).
Simon Hallam
Finance Director
18 February 2021
Strategic Report / Financial Review
17
“
Revenue from aerospace
customers increased by
19%, flow control by 9% and
precision engineering by 4%.
18
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Strategic Report / Financial Review
19
“
The new large pre-treatment
line and cleaning machine
means the process size
capabilities are expanded by
a third.
20
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STRATEGIC REPORT
OVERVIEW
As described in the Chairman’s & CEO’s Report,
Hardide is a ‘technology development’ company in
which increasing numbers of customers and types
of application prove the worth and robustness of the
technology; thereby giving rise to increasing sales
in a wide spectrum of industries, and ultimately to
high, growing and more-consistent profits. If near-
term profits were sought too aggressively, it would
damage the business and so not be in best interest of
shareholders. This does not mean that we will not cut
costs where to do so would not risk a swift recovery
when demand resumes.
In January 2020, Hardide plc raised successfully
£2.35m (net) in the form of new equity; together
with £0.4m of asset finance. The purpose of these
additional funds was to complete the capital works
at the Company’s new facility in Bicester and to
strengthen the balance sheet. The need for the latter
is explained below.
The fundraising followed-on from notable successes
in the year to 30th September 2019; including record
sales of £5.1m. The first half of the year to 31st March
2020 again saw record sales for a half year and the
posting of a modest positive EBITDA. At the end of
the first half we had little indication from customers
or end users of a slowdown in their demand.
Nonetheless, we were already bracing ourselves for a
slowing of some significance in the second half. The
outturn was a decline in revenue to a level last seen
three years ago and the resulting EBITDA loss.
The move of facilities to the new site was an
outstanding success, and enabled substantial
improvements in environmental performance.
Important too were considerable improvements
in working conditions, production efficiency and
Hardide’s image; together with an attendant boost to
staff morale.
The Board retains its settled view that a strong upward
trajectory in gross profit is the primary indicator of
growth in the Group’s value. Accordingly, a sharp
focus is on investing to grow revenues steadily and
significantly so that, because of the Group’s high
operational gearing, gross profit is maximised.
Success in transferring its technology to the Hardide
facility in the USA has provided the confidence
that further geographical expansion can be made
successfully when the time comes. We remain at
the early stages of assessing the merits of a Hardide
facility in the Far East. Despite the considerable
potential in this region, at present, Hardide does not
have sufficient management resource to proceed
further on this. Also, the current balance sheet would
not allow such a move.
It is worth re-stating that substantial opportunities
for new applications and new customers or sectors
usually take years to develop. However, once qualified,
the volumes and margins for the coating from these
can be very attractive. It is important therefore
that the Group strengthen its balance sheet and
has 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 Group has made further progress in its strategic
goal of broadening its customer and sector base,
and is now less dependent on a small number of
customers and markets, and now far less vulnerable
to fluctuations in demand. Nonetheless, further
diversification can and should be achieved and doing
so remains a strategic objective. In the coming year,
we expect to widen our base of industry sectors,
products and customers. The expected increase in
sales to aerospace customers and others, such as in
the industrial filtration sector, will help improve the
balance of sales among sectors.
The ‘push-pull’ approach to developing additional
revenue has had good success with end-users such as
Airbus and their Tier 1 suppliers. This is an important
part of our overall strategy and we plan to develop it
further; particularly with end-users in the energy and
power generation sectors.
OPERATIONS
Despite the COVID-19 pandemic, the move to new
premises in Bicester was achieved smoothly and
successfully. There are now five reactors installed
in the UK, including one that will accommodate
components 50% larger than the others.
The successful establishment some four years ago
of our coating facility in the US continues to serve its
intended purpose of enabling the Group to address a
substantial part of the large North American market
that would otherwise not be accessible to us, and
to make it ‘easy’ for customers to do business with
us. Additionally, having a geographically separate
production facility provides greater security of
supply for customers who have effectively 'designed
in' or single-sourced Hardide coating 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 fourth reactor was installed
there in spring 2020. Space remains there for
considerable further expansion of capacity.
SALES & MARKETING
Customer contact
Although the Group’s coatings have wide applicability
in very many industry sectors, it is a specialised and
relatively new, problem-solving product. As such,
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21
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, Hardide will continue vigorously with
its programme of high-level technical presentations
and attendance at trade fairs and conferences
(pandemic restrictions permitting). Greater use has
been made of email campaigns and, 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 announcement of developing
sales to 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
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 those potential users who
have an identified and immediate need.
In North America, our two business development
executives, who are professionally-qualified engineers,
are making good progress in identifying a wide range
of new customers.
Customer and industry diversification
As well as increasing sales, the customer and industry
diversification element of the Group’s strategy
continues to play a major part in our planning.
Our development of the complex coating process
of filter screens used in well completion has led to
increased sales of the product and represents an
important diversification away from directional drilling
and helps spread our oil & gas business across both
exploration and production. Importantly, it has led also
to interest from potential customers in the industrial
filtration sector. This is a large potential market for
Hardide.
In the coming calendar year, sales to the aerospace
industry are expected to grow, largely on the back of
demand from Airbus, Leonardo and others. The rate of
growth in these sales may be dependent on the timing
of return to normal conditions following the pandemic.
Normally, this sector tends to be slightly counter-
cyclical to the oil & gas sector and helps balance our
portfolio of industry sectors.
Being a utility, power generation is a large non-
cyclical industry. Within that, the turbines that drive
the generator to produce electricity are large and
expensive components. Building on our initial success
in developing a protective coating for turbine blades,
and supported in this by EDF Energy, we will continue
to develop this application. If, as expected, our
coating gains the intended approvals, sales to turbine
manufacturers and maintenance organisations could
be very large indeed and may require new facilities to
meet demand. Sales of this newly-patented coating
for turbine blades have the potential to diversify
considerably our customer base.
Geographies
Despite slow progress, the Group will continue
with its efforts to develop major European 'high-
end' manufacturing markets; particularly Germany,
Switzerland and Italy. In North America, our new US
production facility has meant that customers there
are more comfortable with domestic suppliers.
Meanwhile, we recognise that potential customers
in SE Asia and China continue to show high growth
rates in the aerospace, power generation and energy
industries. We will continue to consider where, how
best to establish relationships and in what form.
However, before detailed planning gets underway,
we will stabilise and strengthen our position in North
America and Europe.
PRODUCT RANGES, CUSTOMERS AND MARKET
CHARACTERISTICS
The Group classifies its applications into five sectors:
Energy (conventional and renewables), 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 it is believed
there is a very significant market for the Group to grow
into.
Energy production
Historically, oil & gas has been the dominant sector for
Hardide and may remain so; at least for the medium
term. However, as demonstrated over recent times,
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 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. Recent
product development has led to increased sales in the
less-secretive ‘production’ sub-sector of the oil and
gas industry.
Customers in the oil & gas industry are particularly
secretive and our agreements with them usually
prevent Hardide from revealing their name, and
especially not referencing the coating’s particular use,
which often conveys competitive advantage to the
end user. This feature makes development of new
customers much harder than otherwise it would be.
However, a recent and important example of greater
transparency has been with the end-user of Hardide-
coated mesh filters.
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Recognising the shift towards ‘green’ production of
energy, Hardide has secured sales to a producer of
materials used in the production of solar cells. Also,
in joint development with a very large manufacturer
of environmentally friendly products, Hardide coatings
are being tested on that manufacturer’s components.
Success with this programme will enable the Group
to address a wide range of customers not previously
accessible.
Aerospace
In contrast to most of the oil & gas industry, aerospace
customers and end-users tend to be much more
open, and approvals by Airbus and Lockheed Martin
for Hardide have enabled the promotion of the
coating to a wide range of other end-users and Tier 1
manufacturers.
The aerospace industry is notoriously cautious 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. Hardide
now has approvals for coating a range of aircraft
components. Sales have been slow to begin with
but as stocks of product without Hardide coating are
consumed, it is reasonable to expect that sales to the
industry will grow faster.
From a low base, the annualised growth in revenue
from the aerospace market sector was 19%.
Flow control
For the time being, flow control remains our second
largest market sector. Sales increased 9% this
year; largely to our main North American pump
customer. 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.
INTELLECTUAL PROPERTY, PRODUCT
DEVELOPMENT AND R&D
A new UK patent was granted in November 2019 for
the protective coating of steam and gas turbine blades
and vanes used in the power generation industry. Also
for 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 application for international
patents has been filed. The granting of this patent also
enhances considerably and extends the IP protection
of existing patents.
Partly funded by Innovate UK, a project to develop
and characterise a new, low temperature 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
coatings will open up opportunities in a wide range of
metals commonly used in the aerospace, and subsea
oil and gas sectors.
Hardide also received two grants from NATEP1 for the
development of applications and finishing techniques
of the low temperature coatings. These projects began
in September 2018 and have now concluded. Both
had multiple industry partners, including Airbus and
Leonardo Helicopters. Hardide was the lead partner in
each case.
The Group is making steady progress with more-
fundamental research into new and potentially
patentable variants of the Hardide coating.
Hardide continues the sponsorship of one of its senior
technical staff to pursue a doctorate (part-time) at
Cranfield University. In addition, Hardide’s technical
director is a visiting lecturer at the same institution.
Not only does this assist the Group in keeping abreast
of relevant technologies, but also provides a means of
educating future engineers about the benefits of high-
performance coatings, especially Hardide’s.
Precision engineering
PARTNERING
Here, the growth in sales was 4% and 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 newly-developed technology, principally for a
manufacturer of X-ray scanners, but also for a number
of other specialised applications.
Hardide will continue seeking new specialist
applications in this market sector.
Power generation
We are making good progress with EDF Energy 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 very long period.
1 National Aerospace Technology Exploitation Programme
Hardide 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 together
cannot be provided by other forms of coating. These
features help in the strengthening and number 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 cooperation of
this kind will develop further.
Another form of industrial cooperation that is proving
to be highly beneficial is the relationships with major
end-users of Hardide coatings, rather than just with
Strategic Report / Strategic Report
23
their Tier 1 suppliers. These end-users include Airbus,
Leonardo Helicopters, EDF Energy and certain major
US oil and gas companies. By cooperating 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 Tier 1 suppliers. The
Group aims to increase the number of end-users with
whom we have close cooperation.
RISK
Despite the greater diversification achieved in the
year, the proportion of the Group’s sales to relatively
few major customers still needs to be addressed.
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. This
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 to test
programmes that do not result in sales, or inclusion
on programmes that are postponed due to budgetary
constraints, furlough of key personnel, or changes in
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 technical risk and revenue potential for Hardide
justifies embarking on the programme in the first
place. Inevitably, this is not a perfect process.
Loss of key technical personnel is a risk for the Group.
In recent times, we have strengthened the technical
team and now have a body 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 speculated about various degrees of
‘Brexit’ and the effect they could have on the Group.
Very little business is done by Hardide directly with
customers in the EU and raw materials for the UK site
are not sourced from the EU, but may travel through
it. Substantial stocks of these key process gases
were put in place in the UK. The US site is supplied
exclusively from US sources where there are multiple
suppliers of process gas and there is local production.
Therefore, the risk of shortage in the US is low.
A risk also arises from the effect of Brexit on currency
exchange rates. However, with its production facility
in the US, the Group has a partial hedge against the
GBP:USD exchange rate. At present, the Group has
sales to Europe of less than 2% of Group turnover;
so a reduced demand from Europe would have an
insignificant effect.
The current COVID-19 pandemic is still affecting global
economic activity and in particular oil and gas drilling
and production; this is having the effect of reduced
demand. The risk is that the predicted recovery
in oil and gas activity takes longer than currently
anticipated. This would result in the lower level of
demand being experienced for a greater length of
time.
A major incident could lead to the temporary closure
of a coating plant, resulting in disruption to service.
This is a risk that has been reduced further because
plant is now better laid out and, much of it being
new, is intrinsically safer. In addition, all operations
are carried out to the relevant AS9100 Quality
Management System and ISO14001 environmental
standards. This means that equipment is maintained
according to a planned schedule and processes of
continuous improvement and ‘5S’ are operated, as well
as care for the environment. A full disaster recovery
plan and robust health and safety systems are kept up
to date. The Group’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; and
vice versa.
THE ENVIRONMENT AND STAKEHOLDERS
At all times, the Group continues to achieve success
and customer satisfaction in a safe, environmentally
conscious and socially responsible manner and takes
into account the needs of all stakeholders.
In the selection of new plant at Hardide’s new facility
in Bicester, special attention was paid to identifying
items of equipment and methods of waste treatment
that reduce environmental impact or use less material,
or both. As a result, items of old but serviceable
machinery have been replaced at greater financial cost
but with much-enhanced environmental performance.
Almost invariably Hardide’s products greatly increase
the life of components. They also help improve
efficiency and provide other benefits to end-users
that include reduced downtime and extended service
intervals. 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 mechanical
performance and ‘whole life’ cost, but also the
lowering of their environmental impact. Items coated
in the UK for North American customers used to be
airfreighted from North America to the UK and back.
Mostly, they are now coated in the US and thereby
reduce markedly our ‘carbon footprint’.
24
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CASH
The fund raising completed successfully in January
2020 strengthened our balance sheet and allowed
capital expenditure to increase and upgrade the
Group’s processing capacity at the same time as
moving to a new site. Further revenue investment
in technical and market development has also been
enabled, but planned revenue expense has been
severely trimmed in response to much-reduced
profits in the second half. Until it is clear that sales
are recovering, and will continue to grow, discretionary
expenditure will be held to a minimum. However,
reduction of key staff would damage our rate of
recovery and future growth. Accordingly, there is no
plan to do this. Management will continue to monitor
cash diligently.
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.
Post balance sheet
Cash projections made at the year-end, and since then
on an ongoing basis, have suggested that the level of
cash would not become unacceptable. Nonetheless,
as a prudent move and as a precaution, on the 1st
February 2021, the Group secured just over £1.0m of
additional cash. This was made up of a CBILS loan of
£0.25m and the rest as new equity.
PARTICULAR STRATEGIC CHALLENGES
Planning for increases in capacity
Our customers usually have great difficulty in
forecasting their long-term demand and often we
see large variances, both higher and lower, in their
actual demand relative to their forecast. Therefore, we
use ‘best estimates’ for our future load and capacity
calculations. These are based on our knowledge of
customers and sectors, together with estimates of the
projected value of new applications in our pipeline.
Lead time for the installation of new coating capacity
is close to 12 months and so we need to plan for new
capacity up to two years ahead. Increased throughput
will make planning easier because that would reduce
volatility of sales overall and make each new piece
of plant less risky and at the same time have a
proportionately smaller effect on the balance sheet.
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 120% increase in sales
over the five most-recent years. Increasing gross profit
whilst controlling carefully sales and administration
costs 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,
mean that awareness among potential customers
for Hardide, and our awareness of those customers
is hard to achieve. The Group has programmes
designed to inform a wider range of industries about
Hardide and these are increasingly by means of digital
promotion.
Lead time to acceptance
Nearly always, new customers will undertake rigorous
testing of Hardide’s coating before accepting it. This
process usually takes years and the data arising
from the test programmes cannot be shared. To
help overcome this problem, Hardide commissioned
a series of tests at independent laboratories. The
findings from these provide additional data for
promotional purposes.
Staff numbers & employee expertise
Employee numbers will not increase nearly as fast
as sales, but a few additional, skilled employees will
be added, when needed, to cope with the expected
increase in demand and to have suitable individuals
in place to comply with succession plans. 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 Group. This means that recruits for many of our
activities have to be trained by Hardide. This takes time,
and so the development of new staff must begin ahead
of demand.
COMPLIANCE WITH SECTION 172(1)
Reporting under this heading is now mandatory and
is intended to highlight how the directors have regard
to the matters under the seven sub-headings below
when performing their duty under section 172(1). These
are dealt with below, although essentially they are
embedded in the text elsewhere in the Corporate
Governance section of this Annual Report.
Likely consequences of any decision in the
long term
Senior managers for part of the time, and directors
take part in the Group’s strategic planning process.
The centre point of this exercise is an off-site,
strategic planning meeting that looks out over five
years. In this reporting year, the meeting was held
using ‘Microsoft Teams’. The Group draws a distinction
between corporate strategy and business strategy.
Strategic Report / Strategic Report
25
The latter is led by the Chairman and dealt with first in
the planning meeting. After that the business strategy
is reformulated in a way that is compatible with the
corporate strategy. Both are written up fully after
the meetings and circulated as appropriate. Suitably-
edited, parts of the business strategy are passed down
to managers for incorporation into their own plans. Six
months later the Board may conduct a review. At this
time, progress against the strategic plan is checked
and ‘course-corrected’ if needed.
As part of this process, the Group’s compliance with
the six elements included in company law is set out
below.
Act in the interests of the Group’s employees
In addition to a competitive salary, staff enjoy
regular health checkups and healthcare insurance.
Any grievances may be raised in confidence by the
staff member or with any director. Also, employees
often have ideas for improvement in the working
environment or methods. The Group’s new offices and
production area provide an attractive space in which
to work and there is adequate space for personal
distancing. An indication of this can be found in a
video of the new facilities.2
The Chief Executive holds staff briefings in most
months in the year, incorporating a Q & A session;
together with improvement proposals from staff. The
actions taken by the Group to protect its employees
during the COVID-19 pandemic are detailed in the
Corporate Governance Statement.
Foster the Group’s business relationships with
suppliers, customers and others
A stakeholder map is updated as needed and used
as a form of check list in evolving the Group’s
relationships with all stakeholders.
It is vital that relations with our customers are
excellent, which they are, and have to be. This
is at least partly because usually it takes the
customer some years to finalise its approval of new
products.3 This requires a close partnership and joint
development with customers, and often with the
manufacturers of the component to be coated.
The most critical ‘bought-in’ supplies for production
are the gases used in the coating process and
electricity. Together, these materials account for
the great majority of variable production costs.
Internationally, the primary process gas is deemed
a strategic material. As a result we have formed
agreements and close relationships with a number
of suppliers with whom the Group must and does
maintain good long-term relationships. For critical
laboratory equipment and most items of plant, it is
vital to maintain close relationships with the suppliers
of these; otherwise, production would be halted. As for
electricity, this is a commodity, and the Group reviews
regularly its supply arrangements. It has not been
found useful to develop a particular relationship with
any supplier of electricity.
Take account of the Group’s operations on the
community and the environment
The move to new premises allowed the replacement
of a number of pre-existing pieces of plant with new
ones. Some of these items achieved a reduction in
emissions to very low levels and even improve on the
current environmental rules set by the authorities,
thereby reducing the Group’s environmental impact.
In cooperation with suppliers and their subcontractors,
we are looking to reduce further our carbon footprint.
A significant reduction in airfreight4 has been achieved
already by the opening of the US facility in Martinsville.
Maintain a reputation for high standards of
business conduct
Because of its necessarily long-term relationship with
suppliers, customers and regulatory bodies, the Group
maintains, and must maintain, very high standards
of business conduct. To do otherwise would restrict
sales, especially new sales. This extends to employees
among whom is embedded the Group’s very valuable
non-patented intellectual property, many of whom
must undergo training for about a year when first
employed.
Act fairly between members of the Group
All shareholders are free to raise matters with the
CEO, the SID and the Chairman. This is facilitated
by the contact details provided. In addition, all
shareholders with 1% of total equity of the Group are
encouraged annually by way of a personal letter from
the Chairman inviting them contact him or the SID if
they have concerns that they would rather be dealt
with by either of them.
Generally
Being a fairly small company, its directors and the
Board as a whole, would be informed by the CEO
and other executive directors in respect of the sets
of duties set out above. Also, all directors are free to
undertake regular ‘walk abouts’ in the UK facility and
this assists with the compliance process.
The standards set out above also apply largely to the
Group’s US facility. Senior managers thereof reside in
the UK and most purchases for the US are authorised
by the UK team. Accordingly, and except for local
regulations, our US facility complies substantially with
standards set in the UK. Where US standards differ
in important respects from those in the UK, the UK
based VP Operations for the US company deals with
them on a case-by-case basis, making extensive use
of real-time video. Overall, standards in the US do not
fall below the standards applicable to the UK facility.
2 This can be viewed on https://www.youtube.com/watch?v=bSMme5_alEk&t=85s or by logging onto YouTube and search for “Hardide Coatings”.
3 About 12 years in the case of Airbus.
4 As an example, some of the components to be coated by Hardide are shipped both from and to North America.
26
Strategic Report / Strategic Report
“
The Group has made further
progress in its strategic goal of
broadening its customer and
sector base, and is now less
dependent on a small number
of customers and markets.
Strategic Report / Strategic Report
27
28
Corporate Governance / Board of Directors
THE BOARD OF DIRECTORS
Robert John Goddard
Chairman
Robert was appointed as Chairman in January 2008. He is chairman of the Audit
Committee and the Risk Committee. He is a member of the Intellectual Property
Committee.
Robert has over 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, he
has a BSc, an MSc, a DIC and an MBA from London Business School. He has extensive
international experience as a senior executive in construction, the oil industry and
speciality chemicals; as well as leading or supervising numerous M&A projects. He was
Group Development Director of Burmah Castrol until 2000, when the company was sold
to BP. Following that, he joined Amberley Group plc in November 2000 as Chief Executive.
Here, 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
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 and Fellow of the Institution of Mechanical
Engineers. 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
Simon Andrew Hallam
Finance Director
Simon was appointed Finance Director on 20th April 2020. Simon is Company Secretary
and a member of the Risk Committee.
Simon has over 20 years’ experience in senior finance roles within industrial
manufacturing and engineering companies. He joined from the Doncasters Group, a
leading international engineering company, where he was Finance Director of the UK
business in the Industrial Gas Turbine Division. Prior to that, he was with IMI plc for nine
years as Finance Director of the UK business within the Precision Engineering Division. He
was Company Secretary of IMI Precision Engineering Ltd for seven years and of Norgren
Limited for five years. He started his career with KPMG where he spent 11 years. Simon
holds a BA (Hons) in Accountancy and is a Chartered Accountant.
Current external appointments: None
Corporate Governance / Board of Directors
29
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.
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 12.5% 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 interim chairman of
Atlantic Healthcare plc, a pharmaceutical company, where he is a member of the
Remuneration and Nominations Committee, and as a non-executive 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, a member of the Audit Committee and is
Senior Independent Director.
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 holds a BSc in Mechanical Engineering and has an MBA from
Warwick University.
Current external appointments: Director - C House Consulting Limited, Trustee – Insight
Gloucestershire.
30
Corporate Governance / Report of the Directors
REPORT OF THE DIRECTORS
RESULTS
The Group loss for the period, after taxation, amounted to £1,291,000 (2019: £1,136,000 loss). The directors have
declared that no dividends will be paid in respect of the 2020 financial year (2019: Nil).
DIRECTORS
The present membership of the Board is set out on pages 28-29, 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 4p shares
30 September 2020
30 September 2019
Robert Goddard
28 January 2008
Andrew Boyce
18 June 2012
-
-
Charles Irving-Swift
20 March 2018
17 August 2020
Tim Rice
20 March 2018
Philip Kirkham
1 September 2012
Yuri Zhuk
14 March 2005
-
-
-
Peter Davenport
21 March 2006
22 May 2020
Simon Hallam
21 April 2020
-
406,807
1
16,792
17,916
101,490
157,027
318,191
-
369,807
1
16,792
17,916
81,490
365,802
318,191
-
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.
Pursuant to the fundraising exercise in February 2021, certain of the Company’s directors agreed to subscribe for new
ordinary 4p shares. Their resulting shareholdings are as follows:
30 September 2020
18 February 2021
Number of ordinary 4p shares
Number of ordinary 4p shares Number of ordinary 4p shares
406,807
17,916
101,490
157,027
subscribed
64,725
9,709
16,182
9,709
471,532
27,625
117,672
166,736
Robert Goddard
Tim Rice
Philip Kirkham
Yuri Zhuk
Robert Boyce, father of Andrew Boyce, subscribed for 226,538 ordinary 4p shares, bringing the subsequent beneficial
holding of Andrew Boyce and Associates to 6,988,231 shares.
The Group’s key management personnel comprise the directors and senior managers who report to the CEO.
Corporate Governance / Report of the Directors
31
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.
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 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 a finance lease, 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 37.
32
Corporate Governance / Report of the Directors
GOING CONCERN
The directors have adopted the going concern basis in preparing these accounts after assessing the principal risks
and having considered the impact of reduced sales scenarios due to the COVID-19 pandemic. The major variables
are the depth, duration and timing of recovery from the COVID-19 pandemic. The directors considered the impact of
COVID-19 on our key markets and in particular the effect of reduced demand from the oil and gas industry is likely
to have on the business for a period of at least 12 months from the date of signing the Annual Report. Whilst the
situation evolves daily, making scenario planning difficult, we have considered various impacts on sales, profitability
and cash flows. We are confident that our operations will remain open and will continue to be able to serve our
customers.
The Group has considered how the virus may affect various functions of the business; from the supply chain to the
ability of our customers to operate. A major disruption would most likely manifest itself in lost volumes and require
significant action in relation to operational cost reductions and additional working capital. Overall, we developed
plans for several possible out turns, with volumes dropping significantly and for the impact lasting for a substantial
part of our 2021 financial year. The revenue and operational leverage impact of such a volume loss would have a
major negative impact on the Group, however the scenario modelling would indicate that the Group would have
sufficient cash reserves over the foreseeable future. The directors believe that the Group is well placed to manage
its financing and other business risks satisfactorily, and have a reasonable expectation that the Group will have
adequate resources to continue in operation for at least 12 months from the date of signing of the Group financial
statements. Therefore, they consider it appropriate to adopt the going concern basis of accounting in preparing the
financial statements. 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 2020 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
W S C Richards
T Simpkin
Rathbones
Canaccord Genuity Wealth Management (Non-Discretionary)
Shareholding
7,713,581
6,761,694
5,600,000
4,521,963
3,179,610
2,030,985
1,980,544
1,705,151
1,678,617
%
14.5
12.7
10.5
8.5
6.0
3.8
3.7
3.2
3.2
R J Goddard
Director
18 February 2021
Corporate Governance / Corporate Governance Statement
33
CORPORATE GOVERNANCE
STATEMENT 2019-20
CORPORATE GOVERNANCE CODE PUBLISHED BY THE QUOTED COMPANIES ALLIANCE (THE ‘CODE’)
The Group has formally adopted 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
Group 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 for which
they were eligible and members of each Committee Board also attended each meeting for which they were eligible.
Scheduled
Board
Meetings1
NEDs only
Audit
Committee2
Remuneration
& Nomination
Committee2
Risk
Committee2
Intellectual
Property
Committee2
R J Goddard
P D Kirkham
P N Davenport
S A Hallam
Y N Zhuk
A R Boyce
T J Rice
C Irving-Swift
12
12
8
6
12
12
12
10
2
-
-
-
-
2
2
-
1
-
-
-
-
-
-
1
-
-
-
-
-
11
11
-
4
4
3
2
-
-
-
-
4
4
-
-
4
-
-
-
1 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.
2 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.
Meetings of only Non-executive directors
Two ‘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 and the characteristics of incentive schemes.
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 Group Chairman.
There have been no instances where redaction was
called for. 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.
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 from time to time.
Formulation of strategy
Towards the end of the financial year the whole Board
considers and develops the Corporate Strategy set out
in the previous year. The formulation or re-formulation
of Corporate Strategy is led by the Chairman but
set and agreed to 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.
A summary of Hardide’s Corporate Strategy can be
found elsewhere in this Annual Report.
34
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 Group 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. From time
to time, directors may call for further analysis of a
particular matter, and frequently do.
Non-financial information is reviewed at least monthly
by the Board. It includes reports from each executive
director and key performance indicators such as
plant performance, delivery performance, research
& development, sales activity and health, safety &
environmental performance. Progress on strategic
projects is also reviewed monthly.
The Board has a formal policy designed to ensure
Board leadership of health, safety & environmental
matters and institute a board-level review of progress
against objectives and KPIs. An important feature of
this is normally a joint presentation made at least
yearly by the CEO and VP of Operations.
COMPOSITION, CULTURE AND EFFECTIVENESS
OF THE BOARD
Independence of directors
Each of the directors (except Mr Hallam) 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 Hallam, Dr Zhuk and Mr Goddard has
options on ordinary shares of Hardide plc; all as
declared in the Annual Report and on the Regulatory
News Service (RNS) at the time of grant.
Annually, the Board reviews Mr Goddard’s activities
outside of Hardide. In 2020, this exercise was repeated
at directors’ meetings shortly after the end of the
financial year. The Board is satisfied that none of Mr
Goddard’s activities conflicts with his role as Chairman
of Hardide. The same applies to the other non-
executive directors.
The ‘independence’ of each non-executive director
has been assessed by four, single purpose ad hoc
committees of directors. Excluded in turn from these
meetings was the non-executive director in question.
As before, 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 Group?
ii Has there been any matter affecting the Group 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 Group
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 was 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 Group.
Each of the other two non-executive directors is
considered by the Board to be ‘independent’.
Number of directors
Following the resignation earlier in the year of Charles
Irving-Swift, there has been six directors; three of them
non-executive. Tim Rice has been appointed the senior
independent director (‘SID’) in place of Charles Irving-
Swift. In addition, and in compliance with the Code, the
chair of the Remuneration & Nomination Committee is
to be an independent director and Tim Rice has taken
that role. The Chairmanship of the Audit Committee has
now been resumed by Robert Goddard.
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. With the knowledge of
the Chief Executive, from time to time the Chairman
seeks directly the views of the two other executive
directors. Also, the Chairman has 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. The SID is in a position
to do the same.
Open exchange and mutual challenge among Board
members and staff is a well-established part of the
culture of the Group. The Chairman is made aware
promptly of matters of substance and style that merit
his attention. In addition, each director is free to speak
in confidence to the Chairman or the SID; as is any
member of staff.
An open exchange of views takes place not only
up and down the management pyramid, but also
‘sideways’ between disciplines. This is vital for a
high-tech company that is continually developing new
substances and methods. Maintenance of this and
other aspects of Group culture is explicitly one of the
CEO’s important tasks and, implicitly, of each member
of staff. Any concerns about corporate culture are
raised initially by the CEO with the Chairman.
The CEO and Chairman have an off-site or video
meeting every month. At this meeting they discuss
the upcoming Board meeting, the latest performance
indicators and particular challenges facing the Group
and high-level ‘people issues’.
Any director may have access to independent
professional advice at Group 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 very well
equipped with directors who have experience of the
‘growing pains’ associated with the organisational
changes that result from growth in a technology
company, and are well able to support changes that
arise and deal with the associated challenges.
Executive directors and senior managers worked
closely with external consultants and designers to
deliver the expertise for the highly successful layout,
fit-out and installation of plant and equipment.
Corporate Governance / Corporate Governance Statement
35
Roles of CEO, Senior Independent Director
and Chairman
Hardide is a small company, hence 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. Also, he
designs and implements the sales and marketing
plans. By virtue of his experience as a professional
chartered engineer, he provides strong support for
operations and engineering. Also, he has the principal
responsibility for the Group’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
awareness among all staff of the Group’s performance
and challenges; including increasing their awareness of
the Group’s environmental and social responsibilities.
These briefings are usually held monthly. Ensuring
compliance with the quality management systems,
adequate staff training, the health & safety of
employees and the environmental performance are
direct accountabilities of the CEO.
Senior Independent Director (‘SID’):
The SID is charged with:
i Being a conduit for concerns of directors,
shareholders and other stakeholders who prefer
to discuss matters that they have been unable to
resolve through other channels;
ii being available to meet principal shareholders;
iii being a sounding board for the Chairman; and
iv along with other non-executive directors and having
taken soundings among other suitable parties,
conducting reviews of the performance of the
Chairman.
The Chairman:
The role of the Group’s Chairman is to:
i Ensure effective communication with shareholders;
ii be available for private meetings or calls with
principal shareholders;1
iii set the overall rules for corporate governance and
ensure compliance with these;
iv lead the development of Corporate Strategy;
when setting remuneration for the CEO. The CEO
conducts performance planning exercises for his
direct reports. The 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.
At appropriate times, meetings of the three non-
executive directors alone may include consideration of
the performance of individual executive directors and
of the Board as a whole.
Range of skills and experience
A formal exercise is undertaken annually to establish
the range of skills and experience 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. The Group’s
Finance Director is a Chartered Accountant. Three of
the directors have an MBA and at least two of these
have the skills needed to chair the Audit Committee.
A single director has in-depth knowledge of advanced
CVD coating technology. Three directors are Chartered
Engineers.
v ensure effective and open communication among
directors; particularly at Board meetings;
Company Secretary
vi chair the Risk Committee and the Audit Committee
and be an ordinary member 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, format and
presentation of information for the Board.
Evaluation of the Board and individual
directors
The Chairman and the CEO agree annually a set of
objectives for the CEO and this is shared with other
directors. These objectives are taken into account
At present, the Finance Director (Mr Hallam) also
acts as the Company Secretary. The directors have
reviewed again this dual role and consider it to be
acceptable. This is on the grounds that the Group
is fairly small, and its corporate structure is simple.
Moreover, Mr Hallam 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
1 Yearly, the Chairman writes to all holders of shares representing 1% or more of the total. In that letter he makes clear that he or the SID are
available for private meetings or telephone calls.
36
Corporate Governance / Corporate Governance Statement
the Chairman, CEO and Remuneration & Nominations
Committee agree on action in respect of the roles
covered by the plan.
overall value of such awards, the individual awards
to directors and other senior managers and the
performance targets to be used;
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 Group. What follows is a
summary of those terms and conditions.
Annual fees for the Chairman remain unchanged at
£50,000, as are those for the other non-executive
directors who each receive £25,000. Fees are paid
wholly under the PAYE system; except for Andrew
Boyce whose fees are paid split between his personal
service companies and the PAYE system.
The terms of appointment of all non-executive
directors require them to serve on Board Committees
and to devote sufficient time to their roles. All
directors are entitled to seek independent legal advice
and have personal indemnity insurance paid for by the
Group.
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 to the identity of certain
customers. Following the end of their appointment,
directors may not, for one year, be engaged in any
business or technology that does or reasonably may
be expected to compete 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 Group’s website.
Remuneration and Nomination Committee
The Committee comprises Tim Rice as chair and
Andrew Boyce. It meets at least quarterly. In this
financial year it met 11 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 recommend to
the Board, 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-related incentive plans for approval
by the Board. For any such plans, determine each
year whether awards should be made and if so, the
iv ensure that contractual terms on termination, and
any payments made, are fair to the individual and
to the Group, 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 plans for
the years ahead and especially with the Group’s
strategic goals;
vi at suitable times, review the implementation of
succession plans; and
vii oversee any proposal for major changes in
employee benefits throughout the Group.
Audit Committee
The Audit Committee comprises Robert Goddard
as its chairman and Tim Rice. Normally, the Finance
Director and CEO will attend by invitation. Whilst
no non-executive member of the Board has a full
qualification in accounting, Mr Goddard and Mr Rice
are both deemed competent by virtue of their MBAs
and professional experience.
Normally, the Audit Committee meets at least twice
each year with the Group’s auditor at appropriate
times during the reporting and audit cycle, and in
addition as required. The Committee met once during
the year.
The duties of the Audit Committee are to:
i Monitor the integrity of the financial statements
and the financial reporting process;
ii review and challenge the effectiveness of the
Group’s internal controls, risk identification and risk
management systems;
iii review the Group’s arrangements for its employees
to raise concerns in confidence and with impunity
about possible wrongdoing and ensure these
arrangements allow proportionate and independent
investigation;
iv review and keep up to date the Group’s procedures
for detecting and preventing bribery and fraud; and
ensure that the Group complies with all relevant
legislation in those jurisdictions where the Group
operates and/or employs staff;
v monitor the performance of the statutory audit,
review the independence and effectiveness of the
external auditor; and make recommendations in
relation to the appointment, re-appointment and
removal of the Group’s external auditor; and
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 certain non-audit
services including annual tax compliance. The Board
Corporate Governance / Corporate Governance Statement
37
has reviewed its safeguards and policies in place for
non-audit services and is satisfied that these are
sufficiently robust to ensure James Cowper Kreston
maintain their objectivity and independence. James
Cowper Kreston report to the Board annually on their
independence to Hardide plc. Non-audit services are
only provided if such services do not conflict with their
statutory responsibilities and ethical guidance
Currently, the Group is too small to justify an
internal audit function and so the Audit Committee
is responsible for examining the Group’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 Group’s auditors, James Cowper Kreston, were
reappointed for the year ended 30th September 2020,
which was their fourth year acting as the Group’s
auditors. It is intended that they are 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.
Intellectual Property Committee
Dr Yuri Zhuk chairs the quarterly meeting of the IP
Committee, with Robert Goddard and Philip Kirkham
as the other members. The Committee is charged
with reviewing, and in most cases deciding upon all
matters relating to intellectual property, including
patents, trademarks and know-how. The Committee
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
Group’s Patent Attorneys (Harrison Goddard Foote
Ltd) to perform patent searches and provide a range
of advice on IP matters. Where the Committee does
not have delegated powers, the Committee will make
recommendations to the Board.
Risk Management Committee and the
management of significant events
The Board has overall responsibility for the Group’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 Group
may be exposed and recommends how these may
be avoided, mitigated, insured against, or some
combination of these. Risks are ranked by assessing
their likelihood of occurrence and their potential
impact. Risks 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 Simon Hallam. Reports of the Committee and
its assessment of risks are made to the Board and
the Audit Committee. Descriptions of the principal
risks that the Group has identified are included in the
Strategic Report.
The Group 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 Group has
a Crisis Management and Disaster Recovery Procedure.
ENVIRONMENTAL AND SOCIAL GOVERNANCE
The reporting year has seen the transfer of all2 of
Hardide’s UK operations to a nearby site in Bicester.
The new premises are newly-built on a modern
industrial estate and are well away from any
residential areas. As a result, the effect of any noise
or release of emissions would be less than at the
previous site. Nonetheless, and not compulsory, the
opportunity has been taken to replace some existing
substantial items of plant with types that have a much
lower environmental impact, as well as improving
the cleansing of by-products of the process. Low
energy lighting has also been installed, along with a
general upgrading of safety for staff and visitors and
general working conditions. It would not have been
sensible in the reporting year to attempt the creation
of environmental benchmarks such as an estimated
‘carbon footprint’. It should be noted that, since the
new premises have been equipped with plant having
excellent environmental credentials, it will prove
difficult to improve on it; at least in the near term.
Nonetheless, the Group will seek out opportunities to
do so.
Whilst the Group has no ability to constrain its
customers, it is worth noting that in most applications,
the Hardide coating will reduce the environmental
impact of the end-user. Examples include the
replacement of hard chrome plating, whose
production process uses carcinogenic salts, and
the lengthening of service intervals due to reduced
corrosion or wear of critical parts.
COVID-19
The Group has taken precautions to protect all
its employees (including those most vulnerable),
contractors and visitors at both its UK and US sites
due to the COVID-19 pandemic and is complying with
the relevant guidelines from both the UK government
and the State of Virginia. Measures include education
and training, signage, re-organising to ensure social
distancing in the workplace, temperature checks,
mask-wearing and more frequent and rigorous
cleaning regimes. Where appropriate, certain staff
have been able to work from home to minimise the
number of staff on-site at any one time, and others
have been ‘flexibly-furloughed’ and thus minimising
the number of staff on-site at any one time. At all
times at least one director has been present in the
Bicester office, with operations continuing normally
throughout the pandemic. Delivery of product to
customers has not been affected.
CONFLICT MINERALS
The Group has undertaken a due diligence exercise
with its suppliers of key process gasses to ensure that
conflict minerals are not used in their manufacture.
We are pleased to report that all suppliers of these
gases have confirmed that conflict minerals are not
used in their processes. A statement to this effect may
be found on the Group’s website.
2 Just one reactor is to remain in the former premises until Airbus approves the new site, probably in spring 2021.
38
Corporate Governance / Corporate Governance Statement
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
and motivate executive directors and senior
management of the calibre needed to run the
Group successfully, and to retain them;
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.
No director has been awarded a bonus for the
reporting year; nor had an annual salary review in
January 2021.
Remuneration components
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 longer-term incentive; comprising principally of
share options;
iv medical insurance for employees and their families;
and
v in some cases, a car or car allowance.
Share Options as a longer-term incentive
The Group does not have a formal long-term incentive
plan or share option scheme. The Group instead
maintains the following policy regarding share options:
i The granting of share options should be reviewed at
least annually by the Committee, having taken the
advice of both the Group’s Chairman and its CEO;
ii share options are recognised as effective means
of recruiting, incentivising and encouraging the
retention of directors and senior managers;
iii grants may be made when there has been
exceptional performance that has been shown to
have, or is likely to have, a positive impact upon
Hardide plc’s share value;
iv also, grants may be considered for long-serving key
managers and employees where it is considered
they have added value over the term of their
employment and should be recognised, incentivised
and retained;
v vesting criteria will vary. They may include different
elements such as:
a. the period since grant and the achievement of
particular share price at a future point that is
above that current at the date of grant;
b. the growth of sales made by the business; and
c. the improvement in gross profit; and finally
vi the grant of options to executive directors is
determined by a single-purpose sub-Committee
of the Board, on which only non-executive
directors sit. Other grants recommended by the
Remuneration & Nomination Committee are at the
discretion of the main Board.
Upon award, the particular criteria relating to
directors’ new share options are disclosed in an RNS
notice.
Directors’ Service Contracts
Messrs Kirkham, Zhuk and Hallam have service
contracts that are terminable at up to 12 months'
notice by either party. The Committee considers, and
is advised that these contracts are in line with market
practice.
The service contracts for non-executive directors are
terminable at one month’s notice either way.
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.
Compensation for loss of office
There are no predetermined special provisions for
compensation for executive or non-executive directors
in the event of loss of office. The Remuneration &
Nomination Committee considers the circumstances
of individual cases of early termination and determines
compensation payments accordingly. An important
principle is not to reward poor performance.
EXTERNAL ADVISERS
The Group consults a range of professional advisers.
Principally, these are:
i
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 conflicted, the Group’s auditor
provides UK tax advice and prepares returns. It also
advises on R&D tax credits. Separate arrangements
are made for the US subsidiary;
v a specialist adviser on company secretarial matters.
They also provide advice and look after the Group’s
statutory books and filings;
vi employment lawyer; and
vii advisers on matters related to Health, Safety &
Environment in both the UK and US.
The identities of the advisers in the first four above
can be found on the final page of the Group’s Annual
Report. The roles of the remainder are obvious from
the title of the adviser and so are not elaborated upon
here.
Corporate Governance / Corporate Governance Statement
39
BRIBERY ACT, 2010 (THE ‘ACT’) AND
UNETHICAL BEHAVIOUR
Well before the Act came into force, the Group had in
place a full ’Anti-bribery Policy’, and this was in parallel
with a ’Whistle-blowers’ Policy’. Under guidelines set
by the Board, a designated ‘Group Compliance Officer’
manages the processes and procedures that flow
from these policies; in particular the areas perceived
to be most at risk from bribery or from behaviour that
is fraudulent or unethical. Any member of staff may,
in confidence with any director, raise concerns about
financial or other impropriety. 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 Group
policies and procedures appear in the staff handbook.
Annually, all staff are required to confirm that they have
read, understood and complied with these.
Hardide’s policy regarding its anti-bribery policy and
guidance thereon may be found on the Group’s website.
THE MARKET ABUSE REGULATION (‘MAR’)
The Group 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 closed period of 30-
days ahead of the announcement of its interim and
preliminary full-year results; as well as a planned
event that may have an influence on share price; all in
accordance with MAR requirements.
THE EU GENERAL DATA PROTECTION
REGULATION (‘GDPR’ OR ‘REGULATION’) AND
THE UK DATA PROTECTION ACT 2018
These Regulations 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 Group, with the assistance of an external
consultancy began developing its GDPR compliance
plan in mid-2017 and continues to do so. All the
procedures and proper records are in place to achieve
and demonstrate compliance. The Group is aware that
the separate UK GDPR came into effect from January
2021.
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 Group’s Annual Report. A summary of
this also appears in the Chairman’s and CEO’s Report.
The Group 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 Group has
a policy of re-visiting its strategies at least annually. The
Business Model is derived from the Business Strategy.
CYBER SECURITY
The Group has strong cyber security systems. It has
an ongoing contract with an external specialist cyber
security company and is accredited to the government-
backed Cyber Essentials scheme.
COMMUNICATION WITH STAKEHOLDERS
Shareholders
When there is a significant event regarding the Group,
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 (this year by means of
virtual meetings). In addition, the Chairman has regular
contact with significant shareholders and they are
free to contact him with any concerns. Face-to-face,
telephone or video 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 Group’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 Group develop. When it is safe and
appropriate to do so, there will be a special open day
for shareholders at Hardide’s new site. In the meantime,
a video has been produced showing the equipment
installed which is available on the Group’s website.
Hardide’s website is comprehensive and, as well as
statutory documents, includes profiles of directors
and descriptions of a wide range of Group features and
activity. An improved and mobile friendly version of
the website was launched in May 2020. Hard copies of
Hardide’s Annual Report are available from the Group
on request.
Other Stakeholders
In addition to shareholders, the Group considers
stakeholders to include its employees, customers,
suppliers, contractors, the local community and other
parties with whom it interacts. As part of its Quality
and Environmental Management Systems, the Group
has and refers to 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 Group
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 Group 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.
Hardide is accredited to and complies with the
international Environmental Management standard, ISO
14001:2015 as well as Quality Management Systems
AS9100 RevD, ISO9001:2015 and Nadcap (the National
Aerospace Defense Contractors Accreditation Program).
On behalf of the Board,
Robert Goddard
Chairman
18 February 2021
40
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 2020 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 2020 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 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.
Financial Statements / Independent Auditor's Report
41
REVENUE RECOGNITION
Risk description
SHARE-BASED PAYMENTS
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.
The Group provides share based incentive plans for
directors and employees. During the year the Group
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
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;
42
Financial Statements / Independent Auditor's Report
• 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 completed its relocation in Autumn 2020. As detailed
in note 15 to the financial statements, the Group has
recognised a provision for dilapidations of £100,000 (2019:
£50,000) and a provision for an onerous lease of £51,000
(2019: £51,000). 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;
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 going concern:
• gained an understanding through walkthroughs
performed and discussions with management of the
process in place for reviewing going concern;
• reviewed budgets and forecasts prepared by
management and considered the assumptions made
for reasonableness;
• considered a range of severe but plausible downside
scenarios and reviewed the impact on management’s
assessment of the Group being a going concern; and
• reviewed the adequacy of the disclosures in respect of
going concern.
Key observations
The results of our testing were satisfactory and we
consider the disclosures surrounding going concern 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 £71,000 (2019: £76,000). Performance
materiality of £50,000 (2019: £53,000) was applied for
testing and it was agreed with the Board that we would
report on all audit differences in excess of £3,500 (2019:
£3,000), as well as differences below that threshold that,
in our view, warranted reporting on qualitative grounds.
We also report on disclosure matters that we identified
when assessing the overall presentation of the financial
statements.
• performed recalculations on the provisions to check
the accuracy of the calculations;
Materiality in the prior year was based on a turnover based
benchmark.
• 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 results of our testing were satisfactory and we
consider the disclosures surrounding provisions to be
appropriate.
GOING CONCERN
Risk description
Management are required to prepare the financial
statements on the going concern basis unless they
either intend to liquidate the Group or to cease trading,
or have no realistic alternative but to do so. In assessing
going concern, management make estimates and
judgements relating to the future that are considered to
be reasonable but that are inherently uncertain.
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 £66,000 (2019: £52,000).
Performance materiality of £46,000 (2019: £36,000) was
applied for testing and it was agreed with the Board
that we would report on all audit differences in excess
of £3,300 (2019: £2,600), 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.
Financial Statements / Independent Auditor's Report
43
For each component in the scope of our Group audit, we
allocated a materiality that is less than our overall group
materiality. The range of materiality allocated across
components was between £30,000 and £66,000.
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
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the directors’ responsibilities
statement set out on page 31, 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) FCA (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
agreement with the accounting records and returns; or
18 February 2021
• 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.
44
Financial Statements / Consolidated Statement of Comprehensive Income
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
For the year ended 30 September 2020
Revenue
Cost of sales
Gross profit
Administrative expenses
Depreciation and amortisation of owned assets
Depreciation of right of use assets
Exceptional items:
Provisions
Operating (loss)
Finance income
Finance costs
Finance costs on right of use assets
(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
2
15
3
4
5
5
7
8
8
2020
£ ’000
4,756
(2,436)
2,320
(2,861)
(477)
(288)
42
(1,264)
11
(12)
(91)
(1,356)
65
(1,291)
(2.5)p
(2.5)p
(73)
(1,364)
2019
£ ’000
5,052
(2,635)
2,417
(3,037)
(481)
-
(101)
(1,202)
15
(3)
-
(1,190)
54
(1,136)
(2.5)p
(2.5)p
113
(1,023)
The accompanying accounting policies and notes form an integral part of these financial statements.
Financial Statements / Consolidated Statement of Financial Position
45
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
For Hardide plc, company registered number 05344714
at 30 September 2020
Assets
Non-current assets
Goodwill
Intangible assets
Property, plant & equipment
Right of use assets
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
Right of use lease liability
Provisions
Provision for grant repayment
Provision for onerous lease
Total current liabilities
Net current assets
Non-current liabilities
Financial liabilities
Right of use lease liability
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
Note
9
10
11
12
13
13
13
13
14
14
14
15
15
16
16
15
17
17
2020
£ ‘000
69
50
6,337
2,130
8,586
565
486
395
2,715
4,161
12,747
906
91
193
116
45
1,351
2,810
407
2,046
106
2,559
3,910
8,837
3,836
18,196
(13,210)
360
(345)
8,837
2019
£ ‘000
69
30
2,745
-
2,844
691
1,003
277
4,809
6,780
9,624
1,351
50
-
260
-
1,661
5,119
164
-
101
265
1,926
7,698
3,673
15,987
(11,964)
274
(272)
7,698
The financial statements were approved and authorised for issue by the Board on 18 February 2021.
Robert Goddard
Chairman
46
Financial Statements / Consolidated Statement of Cash Flows
CONSOLIDATED STATEMENT OF
CASH FLOWS
For the year ended 30 September 2020
Cash flows from operating activities
Operating (loss)
Impairment of intangibles
Depreciation on owned assets
Depreciation on right of use assets
Share option charge
Decrease / (increase) in inventories
Decrease / (increase) in receivables
(Decrease) / increase in payables
(Decrease) / increase in provisions
Cash used in operations
Finance income
Finance costs
Right of use asset interest
Tax received
Net cash 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
New loans raised
Loans repaid
Repayment of leases
Net cash generated from financing activities
Effect of exchange rate fluctuations
Net (decrease) / 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
2020
£ ‘000
2019
£ ‘000
(1,264)
(1,202)
13
464
288
86
126
388
(445)
(144)
(488)
11
(12)
(91)
76
(504)
(4,166)
(4,166)
2,372
402
(75)
(221)
2,478
98
(2,094)
4,809
2,715
7
474
-
62
(392)
(266)
73
116
(1,128)
16
(3)
-
-
(1,115)
(1,106)
(1,106)
3,578
139
(27)
-
3,690
38
1,507
3,302
4,809
Financial Statements / Consolidated Statement of Changes in Equity
47
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
For the year ended 30 September 2020
At 1 October 2018
Issue of new shares
Share options
Exchange translation
Loss for the year
Share
Capital
£ ‘000
3,405
268
-
-
-
Share Share-based
Payments
£ ‘000
Premium
£ ‘000
Translation
Reserve
£ ‘000
Retained
Earnings
£ ‘000
12,676
3,311
-
-
-
308
-
(34)
-
-
(385)
(10,925)
-
-
113
-
-
97
-
(1,136)
At 30 September 2019
3,673
15,987
274
(272)
(11,964)
At 1 October 2019
Issue of new shares
Share options
Exchange translation
IFRS 16 adjustment
Loss for the year
3,673
163
15,987
2,209
-
-
-
-
-
-
-
-
274
-
86
-
-
-
(272)
(11,964)
-
-
(73)
-
-
-
-
-
45
(1,291)
At 30 September 2020
3,836
18,196
360
(345)
(13,210)
Total
Equity
£ ‘000
5,079
3,579
63
113
(1,136)
7,698
7,698
2,372
86
(73)
45
(1,291)
8,837
48
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 2020 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 2019.
• IFRS 16 Leases
The impact of adopting IFRS 16 Leases using the
modified transitional approach were additions to right
of use assets of £2,368,000, depreciation of £288,000
and interest payable of £91,000.
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* 1st January 2020
• IFRS 3 – Business Combinations
• IAS 1 – Presentation of Financial Statements and
IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors
Effective date* 1st June 2020
• IFRS 16 – COVID-19 related rent concessions
(amendment to IFRS 16)
Effective date* 1st January 2022
• IFRS 3 – Business Combinations
• IAS 37 – Provisions (regarding onerous contracts)
• 2018-2020 annual improvements cycle
* 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.
The following principal accounting policies
have been applied:
Basis of preparation
The financial statements have been prepared on
the going concern basis, under the historical cost
convention. These financial statements are presented
in pounds sterling because that is the currency of the
primary economic environment in which the Group
operates. All amounts are rounded to the nearest
thousand pounds.
Principal activity
The principal activity of the Group and parent
company is a leading producer of patented Chemical
Vapour Deposition (CVD) coatings for the oil and
gas industry, flow control equipment, advanced
engineering and aerospace.
Going concern
The directors have adopted the going concern basis in
preparing these accounts after assessing the principal
risks and having considered the impact of reduced
sales scenarios for COVID-19. The major variables
are the depth, duration and timing of recovery from
the COVID-19 pandemic. The directors considered
the impact of COVID-19 on our key markets and in
particular the effect of reduced demand from key
customers in those markets is likely to have on the
business for a period of at least 12 months from the
date of signing the Annual Report. Whilst the situation
evolves daily, making scenario planning difficult, we
have considered various impacts on sales, profitability
and cash flows and believe that the Company and
the Group have adequate resources to continue in
operational existence for the foreseeable future.
Basis of consolidation
The consolidated financial statements incorporate
the financial statements of Hardide plc and entities
controlled by Hardide plc (its subsidiaries) made up to
30 September each year.
Control is achieved where Hardide plc has the power
to govern the financial and operating policies of
an investee entity so as to obtain benefits from its
activities. The financial statements of subsidiaries are
included in the consolidated financial statements from
the date that control commences until the date that
control ceases.
Transactions between and balances with Group
companies are eliminated together with unrealised
gains on inter-company transactions. Where
necessary, adjustments are made to the financial
statements of subsidiaries to bring the accounting
policies used into line with those used by the Group.
Acquisitions are accounted for by the purchase
method. The cost of an acquisition is measured as the
fair value at the date of exchange of the consideration
provided plus any costs directly attributable to the
acquisition. On acquisition, the assets and liabilities
Financial Statements / Notes to the Group Financial Statements
49
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 13.
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.
50
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:
Plant & machinery
2 to 10 years
Leasehold improvements
Over remaining term of lease
Fixtures & fittings
4 years
Computer equipment
4 years
Depreciation is not charged on assets under
construction.
The carrying values of property, plant and equipment
and investments measured using a cost basis, are
reviewed for impairment only when events indicate the
carrying value may be impaired.
Investments
Investments held as fixed assets are stated at cost
less any provision for impairment.
Inventories
Inventories are valued at the lower of cost and net
realisable value. The costs incurred in bringing each
product to its present location and condition are
accounted for as follows:
Raw materials
Cost of purchase on a first in, first
out basis
Work in Progress and 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 – IFRS 16
The Group leases property and other equipment for
the purposes of its operations. Lease terms contain
a wide range of different terms and conditions. The
lease agreements do not impose any covenants other
than the security interests in the leased assets that
are held by the lessor.
Until the 2019 financial year, leases were classified as
an operating lease. From 1 October 2019, leases are
recognised as a right-of-use asset and a corresponding
liability at the date at which the leased asset is
available for use.
Assets and liabilities arising from a lease are initially
measured on a present value basis. The net present
value of the lease liability includes the present value of
the lease payments not made at the date of transition
and lease payments made before the commencement
date less any lease incentives received. The right-of-
use asset is measured at this net present value of
lease liability plus an estimate of the costs expected
to be incurred in returning the leased property to its
original condition. Lease payments to be made under
reasonably certain extension options are included in
the measurement of the liability.
The lease payments are discounted using the rate
implicit in the lease agreement. If that rate cannot be
readily determined, the lessee's incremental borrowing
rate is used.
Lease payments are allocated between their principal
payments and the finance cost. The finance cost is
charged to the Statement of Profit or Loss over the
lease period.
Right-of-use assets are depreciated over the life of the
lease on a straight line basis.
Short term leases with a lease term of less than 12
months or leases with low value assets are recognised
on a straight line basis as an expense in the Statement
of Profit or Loss.
Financial Instruments
The Group does not enter into hedging or speculative
derivative contracts.
Financial assets and liabilities are recognised on the
Group’s Statement of Financial Position when the
Group becomes a party to the contractual provisions
of the instrument.
Income and expenditure arising on financial
instruments is recognised on the accruals basis, and
credited or charged to the profit and loss account in
the financial period to which it relates.
Financial liabilities and equity
Financial liabilities and equity instruments are
classified according to the substance of the
contractual arrangements entered into.
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.
Financial Statements / Notes to the Group Financial Statements
51
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
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 50% 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
52
Financial Statements / Notes to the Group Financial Statements
future. Accordingly, they have adopted the going
concern basis in preparing the financial statements.
Were this not to be the case the carrying value of the
Group’s assets may have to be impaired.
(c) The Group measures the cost of equity-settled
transactions with employees by reference to the
fair value of the equity instruments at the date
at which they are granted. Estimating fair value
for share-based payment transactions requires
determination of the most appropriate inputs to the
valuation model including the expected life of the
share option, volatility and dividend yield and making
assumptions about them. The assumptions and
model used for estimating fair value for share-based
payment transactions are disclosed in note 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
2. SEGMENTAL ANALYSIS
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 sites in Wedgwood Road,
Bicester and Longlands 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.
(f) The implementation of IFRS 16 requires the Group
to account for its leases as right-of-use assets over
the life of the lease agreement. The present value of
the lease liability on inception requires management
to assess various factors including the discount rate
and the life of the lease and the extent to which any
options to extend or break the lease are exercised.
These factors have a resulting impact in determining
the present value of the lease liability on inception.
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 2020
External revenue
3,192 3,632
1,564 1,420
UK operation
£ ‘000
2020 2019
US operation
£ ‘000
2020 2019
Corporate
£ ‘000
2020 2019
Eliminations
£ ‘000
2019
2020
-
1
91
-
1
-
-
-
12
-
-
3
436
176
329
305
-
-
-
101
-
(42)
-
-
-
-
-
-
10
14
-
-
65
-
-
-
54
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
£ ‘000
2019
2020
4,756 5,052
-
11
103
765
65
(42)
-
15
3
481
54
101
(344)
15
(181)
(513)
(1,281) (1,400)
515
762
(1,291)
(1,136)
Inter-segment revenue
Interest revenue
Interest expense
Depreciation
Income tax
Provision
Reportable segment
profit/(loss)
Segment assets
8,041 4,217
2,761 2,952
4,677 4,910
(2,732) (2,455)
12,747 9,624
Expenditure for
non-current assets
3,790
677
376
429
-
-
-
-
4,166
1,106
Segment liabilities
4,718
688
12,460 12,925
94 1,505 (13,362) (13,192)
3,910
1,926
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
2020
2019
UK
£ ‘000
2,315
1,660
Europe
£ ‘000
N America
£ ‘000
Rest of World
£ ‘000
122
84
2,315
3,308
4
-
Total
£ ‘000
4,756
5,052
The UK operation sells to the UK, Europe and some North American customers, while the US operation only sells to
North America. During 2020, of the £2,315,000 sales to North American customers, £754,000 originated from the UK
operation. All revenue is recognised at a point in time and no revenue is recognised over time.
Two external customers (2019 – five) contributed more than 10% of the Group’s continuing external sales for the year
ended 30 September 2020. The external sales for these customers were £1,377,000 and £1,245,000 which have been
recorded within both the UK and US operation reportable segments, excluding central costs.
Financial Statements / Notes to the Group Financial Statements
53
3. OPERATING 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
Share option expense
Depreciation and amortisation - owned assets
- right of use assets
Exchange differences
2020
£ ‘000
2019
£ ‘000
16
3 3
1,147
526
(318)
86
477
288
28
16
1,385
472
(64)
62
481
-
(17)
Income from grants includes $200,000 (£155,000) received from the US Small Business Association’s Paycheck
Protection Programme. This loan is forgiven and does not require repayment as long as certain conditions are met.
The Group believes those conditions have been met. The Group has also utilised the Government’s Coronavirus Job
Retention Scheme during the year, and income from grants includes £33,000 received under this scheme.
4. FINANCE INCOME
Interest on bank deposits
5. FINANCE COSTS
Interest on loans
Interest on right of use assets
2020
£ ‘000
11
2020
£ ‘000
12 3
91
103
2019
£ ‘000
15
2019
£ ‘000
-
3
54
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:
2020
2019
Technical
Production
Sales and marketing
Management and administration
Staff costs, including executive and non-executive directors, amounted to:
Wages and salaries
Social security costs
Employer pension contributions
Share option expense
15
21
5
6
47
2020
£ ‘000
2,462
249
48
86
2,845
14
21
5
5
45
2019
£ ‘000
2,262
253
39
62
2,616
Of the total share option expense of £86,000 in the year, £65,000 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% (2019: 3%) 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:
2020
£ ‘000
2019
£ ‘000
Philip Kirkham (Chief Executive)
Dr Yuri Zhuk (Technical Director)
Peter Davenport (Finance Director)
Simon Hallam (Finance Director)
Robert Goddard (Non-Executive Chairman)
Andrew Boyce (Non-Executive Director)
Charles Irving-Swift (Non-Executive Director)
Tim Rice (Non-Executive Director)
Total directors’ remuneration
Salary
Accrued bonus
Salary
Pension
Accrued bonus
Salary
Accrued bonus
Salary
Accrued bonus
Fees
Fees
Fees
Fees
191
-
105
12
-
64
-
42
-
50
25
22
25
536
184
33
105
10
20
83
6
-
-
50
25
25
25
566
Financial Statements / Notes to the Group Financial Statements
55
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
2020
£ ‘000
(23)
(42)
(65)
-
-
-
(65)
2019
£ ‘000
(56)
2
(54)
-
-
-
(54)
(b) Factors affecting current tax charge:
The tax assessed on the profit on ordinary activities for the year is lower than (2019: lower than) the standard rate of
corporation tax in the UK of 19% (2019: 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)
2020
£ ‘000
(1,356)
(258)
(49)
428
(42)
(91)
(74)
21
(65)
2019
£ ‘000
(1,190)
(226)
149
71
2
-
(67)
17
(54)
The standard rate of corporation tax in the UK is currently 19% (2019: 19%). The Group has unutilised trading tax
losses in the UK of approximately £4.4m (2019: £3.2m) 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 profits will be available against which the unused tax losses can be utilised. No deferred
tax asset has been recognised in respect of these amounts due to the unpredictability of future taxable profits.
8. EARNINGS PER ORDINARY SHARE
(Loss) on ordinary activities after tax
Basic earnings per ordinary share:
2020
£ ‘000
(1,291)
2019
£ ‘000
(1,136)
Weighted average number of ordinary shares in issue
Earnings per share
51,911,022
(2.5)p
46,100,981
(2.5)p
As net losses were recorded in 2020 and 2019, the potentially dilutive share options are anti-dilutive for the purposes
of the loss per share calculation and their effect is therefore not considered.
9. GOODWILL
Cost at 1 October 2019 and 30 September 2020
Net book value at 1 October 2019 and 30 September 2020
£ ‘000
69
69
Goodwill relates to the acquisition of the net liabilities of Isle Hardide Limited by Hardide Coatings Limited which
occurred in October 2000 and which were valued at £99,095, for which no consideration was paid. The goodwill
had previously been amortised over 20 years under UK GAAP until conversion to IFRS on 1 October 2006. Total
amortisation up to that date amounted to £30,000 giving a net book value of £69,000.
56
Financial Statements / Notes to the Group Financial Statements
10. INTANGIBLE ASSETS
Cost at 1 October
Additions
Disposals
Cost at 30 September
Net book value at 1 October
Amortisation b/fwd
Disposals
Amortisation in the year
Amortisation c/fwd
Net book value at 30 September
2020
£ ‘000
2019
£ ‘000
44
33
(1)
76
30
14
(1)
13
26
50
32
12
-
44
25
7
-
7
14
30
Total
£ ‘000
5,278
1,107
(49)
142
6,478
3,245
483
(43)
48
3,733
2,033
2,745
6,478
4,133
(10)
(130)
10,471
3,733
464
(9)
(54)
4,134
2,745
6,337
11. PROPERTY, PLANT AND EQUIPMENT
Leasehold
buildings
£ ‘000
Plant, vehicles
and fixtures
£ ‘000
Computer
equipment
£ ‘000
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
Depreciation at 30 September 2019
Net book value at 1 October 2018
Net book value at 30 September 2019
Cost at 1 October 2019
Additions
Disposals
Exchange differences
513
111
-
15
639
307
33
-
4
344
206
295
639
1,121
-
(11)
Cost at 30 September 2020
1,749
Depreciation at 1 October 2019
Provided in the year
Disposals
Exchange differences
Depreciation at 30 September 2020
Net book value at 1 October 2019
Net book value at 30 September 2020
344
42
-
(5)
381
295
1,368
4,662
990
(43)
126
5,735
2,864
433
(37)
44
3,304
1,798
2,431
5,735
2,937
(6)
(118)
8,548
3,304
406
(5)
(48)
3,657
2,431
4,891
103
6
(6)
1
104
74
17
(6)
-
85
29
19
104
75
(4)
(1)
174
85
16
(4)
(1)
96
19
78
12. RIGHT OF USE ASSETS
Cost at 1 October 2019
Transition under IFRS 16
Provision for future dilapidations
Cost at 30 September 2020
Depreciation at 1 October 2019
Provided in the year
Depreciation at 30 September 2020
Net book value at 1 October 2019
Buildings
£ ‘000
-
2,270
50
2,320
-
261
261
-
Net book value at 30 September 2020
2,059
13. 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
57
Equipment
£ ‘000
Vehicles
£ ‘000
-
71
-
71
-
17
17
-
54
-
27
-
27
-
10
10
-
17
Total
£ ‘000
-
2,368
50
2,418
-
288
288
-
2,130
2020
£ ‘000
2019
£ ‘000
406
137
22
565
474
12
486
209
63
123
395
2,000
626
89
2,715
4,161
497
127
67
691
991
12
1,003
128
15
134
277
3,739
779
291
4,809
6,780
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
2020
£ ‘000
294
125
36
-
19
474
2019
£ ‘000
656
296
15
25
(1)
991
A total of £180,000 (2019: £335,000) trade receivables are over 30 days old and therefore overdue.
58
Financial Statements / Notes to the Group Financial Statements
14. CURRENT LIABILITIES
Trade payables
Taxation and social security costs
Accruals
Lease incentives
Loans and deferred income
Right of use lease liability
Total current liabilities
2020
£ ‘000
661
62
183
906
-
91
193
1,190
2019
£ ‘000
969
80
302
1,351
12
38
-
1,401
In 2019, the Group entered into 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 was fixed at 2% over the term, repayments were due quarterly and
commenced in March 2019. The loan was secured against the reactor and Hardide plc acted as guarantor.
In March 2020, Martinsville Henry County Economic Development Corporation determined to forgive the entire
remaining loan balance of $182,000 (£142,000) including, without limitation, principal, interest and any other sums due
under the agreement. This grant is now being amortised over the remaining useful life of the reactor.
15. PROVISIONS
Provisions bought forward
Provisions utilised
Provisions (released) / charged
Effect of movements in exchange rates
Provisions carried forward
Provision for grant repayment
Provision for onerous lease
Provision for dilapidations
Maturity analysis:
Within 1 year
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
5+ years
2020
£ ‘000
361
(95)
8
(7)
267
2020
£ ‘000
116
51
100
267
2020
£ ‘000
161
56
-
-
-
50
267
2019
£ ‘000
246
-
101
14
361
2019
£ ‘000
260
51
50
361
2019
£ ‘000
260
95
6
-
-
-
361
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, and have repaid
$116,000 in respect of one of the grants in February 2020. The Group will be repaying the other grant, worth $150,000,
in two equal instalments in March 2021 and June 2021.
During the financial year Hardide Coatings Limited relocated to its new facilities in Bicester. The Directors have made
a provision for a reasonable estimate of dilapidation costs, totalling £50,000. Under IFRS 16, this has been capitalised
in the right of use asset value.
Financial Statements / Notes to the Group Financial Statements
59
16. NON-CURRENT OTHER FINANCIAL LIABILITIES
Lease incentives
Loans and deferred income
Right of use lease liability
Right of use lease liabilities
Total lease liabilities
Maturity analysis:
Within 1 year
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
5+ years
Reconciliation of operating lease commitment balances
Operating lease commitments as at 30 September 2019
Impact of discounting
Lease liabilities as at 1 October 2019
17. SHARE CAPITAL
Allotted ordinary shares of 4p each
Allotted deferred shares of 0.9p each
2019
£ ‘000
35
129
-
164
2020
£ ‘000
-
407
2,046
2,453
£ ‘000
2,239
193
196
180
177
159
1,334
£ ‘000
3,202
(834)
2,368
2020
2019
Number
Value
000 £ ‘000
Number
Value
000 £ ‘000
53,219
2,129
49,146
1,966
189,642
1,707
189,642
1,707
During the year, the Company raised £2,500,000 before expenses (£2,348,000 net of commission, legal fees and
expenses) by way of placing 3,968,254 ordinary 4p shares at a price of 63p per share. Also during the year 104,740
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.
60
Financial Statements / Notes to the Group Financial Statements
18. SHARE-BASED PAYMENT
Outstanding at 30 September 2019
Exercisable at 30 September 2019
Granted during year
Exercised during year
Lapsed during year
Outstanding at 30 September 2020
Exercisable at 30 September 2020
The current directors’ interests in share options are as follows:
Robert Goddard (Chairman)
Philip Kirkham (Chief Executive)
Yuri Zhuk (Technical Director)
Simon Hallam (Finance Director)
During the year, the following options were awarded to directors.
Robert Goddard (Chairman)
Philip Kirkham (Chief Executive)
Yuri Zhuk (Technical Director)
Simon Hallam (Finance Director)
Number
1,226,840
1,176,840
1,923,364
104,740
15,100
3,030,364
1,057,000
Number
237,500
1,241,600
351,008
300,000
Weighted average
exercise price
39.5p
38.6p
56.9p
23.0p
31.9p
50.9p
40.2p
Weighted average
exercise price
48.0p
50.1p
61.0p
29.0p
Number
Exercise price
150,000
741,600
338,508
300,000
62.0p
62.0p
62.0p
29.0p
None of the directors exercised options during the year.
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 58%, a risk-free interest rate of 0.69%, and an
expected life of 4 years. The average calculated fair value of options exercised during the year was 34.5p per share.
All options have a maximum term of 10 years from date of grant and are settled with equity upon exercise. No
options expired during the year. Vesting criteria are a mix of time-based and performance-based. The performance
criteria are the market capitalisation or price per share of the Company, or Group profitability, or new business. At
30 September 2020 the weighted average remaining contractual life of all outstanding options was 8 years and 3
months (2019: 4 years and 5 months).
The total charge to the income statement for share options during the year was £86,000 (2019: £62,000).
19. POST BALANCE SHEET EVENTS
On 26 January 2021, Hardide Coatings Ltd entered into a £250,000 Coronavirus Business Interruption Loan Scheme
(CBILS) backed loan facility with Nucleus Cash Flow Finance Limited. The term is over 60 months at an interest rate
of 11%, with the first loan repayment instalment commencing in February 2022.
On 1 February 2021, the Company raised £791,000 before expenses (£750,000 net of commission, legal fees and
expenses) by way of the issue of 614,886 placing shares and 1,944,986 subscription shares at a price of 30.9p per
share.
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.
Financial Statements / Notes to the Group Financial Statements
61
21. CAPITAL COMMITMENTS
At the Statement of Financial Position date Hardide Coatings Inc had a capital commitment of $51,000 (£45,000)
for the purchase of equipment (2019: £332,000). Hardide Coatings Ltd had capital commitments of £124,000 for the
purchase of equipment (2019: £1,574,000) and £11,000 for leasehold improvements (2019: £1,107,000).
22. CONTINGENT LIABILITIES
There are no contingent liabilities to be disclosed.
23. FINANCIAL INSTRUMENTS – RISK MANAGEMENT
In common with other businesses, the Group is exposed to risks that arise from its use of financial instruments.
The Group’s principal financial instruments are financial assets comprising trade and other receivables (excluding
prepayments) and cash balances; and financial liabilities comprising trade payables as disclosed in notes 13 and 14.
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 2020 the Group had trade receivables
and other receivables of £486,000 (2019: £1,003,000) and cash deposits of £2,715,000 (2019: £4,809,000).
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 2020 and the
maturity profile of the carrying value of the Group’s financial liabilities are shown in note 14. All financial liabilities will
be settled within six months unless stated in notes 15 and 16. 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 loss of £28,000 (2019: £17,000 gain).
Interest rate risk
Interest rate risk arises on borrowings and cash balances which are at floating interest rates. Changes in rates could
have the effect of either increasing or decreasing the Group's net profit. The major risk is to UK rates and there is no
exposure to rates in the USA or Europe.
As at 30 September 2020, the Group had no floating rate borrowings, and all its cash deposits were in floating rate
accounts.
62
Financial Statements / Parent Company Statement of Financial Position
PARENT COMPANY STATEMENT OF
FINANCIAL POSITION
For Hardide plc, company registered number 05344714
At 30 September 2020
Note
2020
£ ‘000
2019
£ ‘000
Assets
Non-current assets
Investments
Amounts owed by group undertakings
Provision
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Total current liabilities
Net current assets
Total liabilities
Net assets
Equity
Share capital
Share premium
Retained earnings
Share-based payments reserve
Total equity
3
4
4
5
6
7
1,235
11,868
(11,868)
1,235
1,645
1,797
3,442
4,677
94
94
3,348
94
1,218
11,886
(11,886)
1,218
163
3,530
3,693
4,911
1,505
1,505
2,188
1,505
4,583
3,406
3,836
18,196
(17,809)
360
4,583
3,673
15,987
(16,528)
274
3,406
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 £1,281,000 (2019: loss of £1,400,000) after
accounting for a reduction in the provision against the intercompany loan of £18,000 and an exchange rate loss on
intercompany loan of £525,000.
The accompanying notes form an integral part of these financial statements.
The financial statements were approved and authorised for issue by the Board on 18 February 2021.
Robert Goddard
Director
Financial Statements / Parent Company Statement of Cash Flows / Statement of Changes in Equity
63
STATEMENT OF CASH FLOWS
For the year ended 30 September 2020
Cash flows from operating activities
Operating (loss)
Share option charge
Decrease in receivables
(Decrease) / 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
2020
£ ‘000
2019
£ ‘000
(848)
69
1
(91)
(869)
10
76
(783)
(3,322)
(3,322)
2,372
2,372
(1,733)
3,530
1,797
(707)
35
7
27
(638)
14
-
(624)
(1,254)
(1,254)
3,578
3,578
1,700
1,830
3,530
STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2020
Share
Capital
£ ‘000
Share Share-based
Payments
£ ‘000
Premium
£ ‘000
At 1 October 2018
Issue of new shares
Share options
Loss for the year
3,405
12,676
240
28
-
3,211
100
-
At 30 September 2019
3,673
15,987
308
-
(34)
-
274
Retained
Earnings
£ ‘000
(15,217)
-
89
(1,400)
(16,528)
At 1 October 2019
Issue of new shares
Share options
Loss for the year
3,673
163
-
-
15,987
2,209
-
-
274
(16,528)
-
86
-
-
-
(1,281)
At 30 September 2020
3,836
18,196
360
(17,809)
Total
Equity
£ ‘000
1,172
3,451
183
(1,400)
3,406
3,406
2,372
86
(1,281)
4,583
64
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:
2020
Number
2019
Number
Management and administration
Sales and marketing
Technical
2
1
5
8
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
2020
£ ‘000
743
78
69
22
912
Details of individual directors’ remuneration are included in note 6 to the Group financial statements.
3. INVESTMENTS
Investments in subsidiaries
2020
£ ‘000
1,235
2
1
4
7
2019
£ ‘000
724
93
35
17
869
2019
£ ‘000
1,218
At 30 September 2020 the company held 100% of the share capital of the following subsidiaries:
Hardide Coatings Limited
Hardide Coatings, Inc
Hardide Aerospace Coatings Limited
Ordinary
Ordinary
Ordinary
100%
100%
100%
UK
USA
UK
Surface engineering
Surface engineering
Dormant company
Class of share
Amount
Country
Nature of business
4. AMOUNTS OWED BY GROUP UNDERTAKINGS
The amounts owed by Hardide Coatings Inc amounting to £11,868,000 (2019: £11,886,000) 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 reduction in debt during the year of £18,000 (2019: £1,425,000 increase) has been credited to the profit and loss
account in the year.
5. TRADE AND OTHER RECEIVABLES
Prepayments and accrued income
Amounts owed by group undertakings
2020
£ ‘000
151
1,494
1,645
2019
£ ‘000
163
-
163
Financial Statements / Notes to the Parent Company Accounts
65
6. TRADE AND OTHER PAYABLES
Trade payables
Social security and other taxes
Amounts owed to group undertakings
Accruals and deferred income
7. SHARE CAPITAL
Allotted ordinary shares of 4p each
Allotted deferred shares of 0.9p each
2020
£ ‘000
30
27
-
37
94
2019
£ ‘000
28
53
1,320
104
1,505
2020
2019
Number
Value
000 £ ‘000
Number
Value
000 £ ‘000
53,219
2,129
49,146
1,966
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 2020 or 30 September 2019.
9. CONTINGENT LIABILITIES
There were no contingent liabilities at 30 September 2020 or 30 September 2019.
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
2020
2019
With
Hardide
Coatings Ltd
£ ‘000
With
Hardide
Coatings, Inc
£ ‘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
Balance outstanding at 30 September
183
(60)
319
2,372
-
1,494
-
-
-
515
-
167
(89)
363
50
-
11,868
(1,320)
-
-
-
762
-
11,886
11. POST BALANCE SHEET EVENTS
On 1 February 2021, the Company raised £791,000 before expenses (£750,000 net of commission, legal fees and
expenses) by way of the issue of 614,886 placing shares and 1,944,986 subscription shares at a price of 30.9p per
share.
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.
66
Company Information / Directors and Advisers
DIRECTORS AND ADVISERS
DIRECTORS
R J Goddard
P D Kirkham
S A Hallam
Y N Zhuk
A R Boyce
T J Rice
Secretary
S A Hallam
AUDITOR
JOINT BROKERS
James Cowper Kreston
2 Chawley Park
Cumnor Hill
Oxford
OX2 9GG
finnCap
One Bartholomew Close
London
EC1A 7BL
Allenby Capital Limited
5 St Helen’s Place
London
EC3A 6AB
BANKER
NOMINATED ADVISER
TAX ADVISER (US)
Royal Bank of Scotland
Dale Street
Liverpool
L2 2PP
finnCap
One Bartholomew Close
London
EC1A 7BL
CBIZ & Mayer Hoffman McCann P.C.
13577 Feather Sound Drive Suite 400
Clearwater,
FL 33762 USA
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
9 Longlands Road
Bicester
Oxfordshire
OX26 5AH
HARDIDE PLC ANNUAL REPORT 2020
Hardide plc is the leading global innovator and provider
of advanced tungsten carbide coatings that significantly
increase the working life of critical metal components
operating in abrasive, erosive, corrosive and chemically
aggressive environments.
Hardide® is a family of nanostructured
and patented, low temperature CVD
(chemical vapour deposition) coatings
which provide exceptional wear and
corrosion resistance and uniquely
combine extreme toughness with
ductility. Our coatings are ‘value-adding’
to components and lower operational
costs by reducing downtime, increasing
productivity and improving performance.
They can be precision applied to
external and internal surfaces including
complex geometries, enabling a level of
engineering design flexibility not possible
with alternative technologies.
Hardide surface engineering technology
transforms the way that parts perform
under severe service conditions.
Previously, levels of friction, abrasion and
aggressive chemical attack have led to
part failure, downtime and extreme cost.
Our coatings are enabling customers in
high wear/high value industries including
energy, aerospace, flow control, power
generation and precision engineering
to optimise part life, improve product
performance and make significant
operating cost savings. The Group has
manufacturing facilities in Oxfordshire, UK
and Virginia, USA.
.
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www.hardide.com
© 2020 Hardide plc
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ANNUAL REPORT 2020