Heidelberger Druckmaschinen Annual Report 2021

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FY2021 Annual Report · Heidelberger Druckmaschinen

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www.hardide.com
© 2022 Hardide plc

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ANNUAL
REPORT
2021

HARDIDE PLC ANNUAL REPORT 2021

Hardide plc is the leading
global innovator and provider
of advanced tungsten carbide
coatings that significantly increase
the working life of critical metal
components operating in abrasive,
erosive, corrosive and chemically
aggressive environments.

Hardide® is a family of nanostructured and

Hardide surface engineering technology

patented, low temperature CVD (chemical

transforms the way that parts perform

vapour deposition) coatings which

under severe service conditions. Previously,

provide exceptional wear and corrosion

levels of friction, abrasion and aggressive

resistance and uniquely combine extreme

chemical attack have led to part failure,

toughness with ductility. Our coatings are

downtime and extreme cost. Our coatings

‘value-adding’ to components and lower

are enabling customers in high wear/

operational costs by reducing downtime,

high value industries including energy,

increasing productivity and improving

aerospace, flow control, power generation

performance. They can be precision

and precision engineering to optimise part

applied to external and internal surfaces

life, improve product performance and

including complex geometries, enabling

make significant operating cost savings.

a level of engineering design flexibility not

The Group has manufacturing facilities in

possible with alternative technologies.

Oxfordshire, UK and Virginia, USA.

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CONTENTS

STRATEGIC REPORT

Highlights

Chairman’s and CEO’s Report

Financial Review

Strategic Report

Section 172

CORPORATE GOVERNANCE

Board of Directors

Report of the Directors

Corporate Governance Statement

Environmental, Social and Governance

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

Highlights

FINANCIAL HIGHLIGHTS

£3.6m

Revenue of £3.6m
(FY20: £4.8m)

£1.3m

Gross profit of £1.3m
(FY20: £2.3m)

£(1.5m)

EBITDA loss of £1.5m before
exceptional items
(FY20: £0.5m loss)

£1.5m

Cash at bank at 30 September
2021 of £1.5m
(FY20: £2.7m)

36%

Gross margin of 36%
(FY20: 49%), lower due to the
fixed production cost element
within cost of sales. Variable
margin was 72%
(FY20: 73%)

£0.8m

Fundraising of approximately
£0.8m together with a
Coronavirus Business
Interruption Loan Scheme
(“CBILS”) loan of £0.25m in
February 2021 to increase cash
reserves. Second CBILS loan of
£0.25m received in April 2021.

Highlights

BUSINESS & OPERATIONAL HIGHLIGHTS

TRADING

n The value of orders received during H2 FY21 of £2.5m was 52% higher than in H1 FY21 as demand

from customers recovers. Compared with FY20:

- 46% increase in sales to the aerospace sector, from a low base

- 38% increase in sales to the precision engineering sector, including power generation

customers

- 46% reduction in sales to the oil & gas sector

- 12% reduction in sales to the flow control sector

STRATEGIC

n Full approval of the new Bicester site for coating flying components received from Airbus. First
production order received for Airbus A320 aircraft wing components. Still waiting for Airbus
and their Tier 1 supplier to agree final arrangements before a supply agreement between
Hardide and the Tier 1 can be signed

n First large production order received for the coating of gas turbine blades for a major

European turbine manufacturer

n Leonardo Helicopters successfully completed testing of a new transmission system design
that includes Hardide-coated components. Production orders are now expected to begin in
FY22

n A testing and development programme is underway with a large US-based manufacturer of

electric vehicles (EVs)

n Development of the ESG agenda, including the metrics on which to base our energy usage

and CO2 emissions

TECHNOLOGY

n Equivalent registration of the most recently secured UK patent is underway in ten leading

industrial countries. The patent covers further-enhancement of the Hardide coating and new
applications, including turbine blades and vanes

n Fundamental research continues into the development of new coating variants with

additional properties conveying significant new and beneficial advantages

POST-PERIOD

n Former Bicester site fully vacated just before lease termination on 26 October 2021.

Environmental benefits will result from the relocation, as well as saving approximately £100k in
dual site running costs

n Stronger trading in the first quarter of the new financial year gives the Board confidence in the

Group’s prospects for FY22

Demand is now
resurgent across
all our sectors and
we have a healthy
pipeline of exciting
opportunities

Looking forward, the much improved

sales performance in the first months of

the current financial year and the

considerable pipeline of opportunities

augur well for further growth in sales.

This provides us with confidence in the

Group’s prospects for 2022 and onwards.

Chairman's and CEO's Report

CHAIRMAN’S AND CEO’S REPORT

We are pleased to report on our annual results for the 2021 financial year. Market recovery is

demonstrated by the value of orders received during the second half of the year, which are a

healthy 52% higher than in the first half. This improvement in order intake has been continuing from

all sectors in the first months of FY22.

During the period, the Group raised net new financing of approximately £1.25m to increase cash

reserves by way of an equity fundraising and CBILS loans.

The move to the new UK production site at Longlands Road in Bicester was concluded during the

year and the final coating reactor was relocated following Airbus’ approval of the new facility. The

new site provides the opportunity to benchmark our environmental performance and identify

areas for further improvement.

COVID-19

The Group has continued to operate throughout the
pandemic. It has taken precautions to protect our
employees, contractors and visitors at our UK and US
sites. 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 received funds from the US Small Business
Association’s ‘Paycheck Protection Programs’.

FINANCIAL RESULTS

The Group generated sales of £3.6m in the year ended
30 September 2021 (FY20: £4.8m).

The value of orders received during H2 FY21 was 52%
higher than in H1 FY21, with the upward trend continuing
into FY22.

Direct costs decreased by 6%, primarily due to the
reduction in the amount of process gases used, as a
consequence of the lower sales volume.

Group gross profit was £1.3m (FY20: £2.3m). Gross
margin was 36% (FY20: 49%), the reduction being due
to the fixed cost of sales (which mainly comprise
production salaries) not decreasing in line with sales
revenue.

Overhead costs, which are mainly staffing costs,
increased by 1% in FY21 on the previous year. Both
years have benefitted to varying degrees from US
government and UK COVID-19 government support
programmes. Excluding the impact of these, overheads
were in line with the previous year.

Before exceptional items, the Group’s EBITDA loss was
£1.5m (FY20: £0.5m loss). This reflected the reduced
revenue.

Borrowings increased from £0.5m in FY20 to £0.8m in
FY21. Mainly this was due to the receipt of two CBILS
loans in February and April 2021, each for £0.25m. The
cash balance at the end of the financial year was £1.5m
(FY20: £2.7m).

Net assets at 30 September 2021 were £6.9m (FY20:
£8.8m).

OPERATIONAL OVERVIEW

Customers and Markets

Aerospace

Aerospace sales increased by 46%. Largely, this was
due to demand from BAE Systems for the coating of
parts for the Eurofighter Typhoon, together with small
production orders from Airbus. The coating has been
approved by Airbus for use on parts for the A320, A330,
A380 and A400M aircraft and we expect to see orders
for coating components for these aircraft during FY22.

The Group is now experiencing further and increased
demand. Development projects are underway with
a wide range of aerospace customers, including
manufacturers of landing gear and from MRO
(Maintenance, Repair and Overhaul) companies. During
FY21, the Group experienced a marked slowdown of
test programmes and commercial discussions, and in
some cases their cessation. Now, many of these have
restarted and are gathering pace.

We are still waiting for Airbus and their Tier 1 supplier
to agree final arrangements that will allow a supply
agreement to be signed between Hardide and the
Tier 1. The timing of this is outside of our control,
but indications are that it should be soon. Other
components for Airbus from other Tier 1 suppliers are
not affected.

Leonardo Helicopters completed successfully the
extended test programme of the transmission
assembly incorporating Hardide-coated parts. This is
the culmination of a long-standing project to develop
a number of coating techniques for parts used in the
transmission and rotor head systems to reduce ‘in-
service’ costs and extend component life. Production
orders are expected to begin in FY22.

The Group attended many virtual and some face-to-
face aerospace-related conferences and exhibitions
throughout FY21, thereby making new connections
and identifying new applications with OEMs and Tier 1
suppliers. The Group plans to exhibit at the Singapore
Airshow in February 2022 and at the Farnborough
Airshow in July 2022.

Chairman's and CEO's Report

Energy

Demand is returning in the energy sector as market
fundamentals improve. Energy consumption is
increasing and our major oilfield services customers
are reporting growth in their own businesses. As the
global economy recovers, the Board is confident that
demand for Hardide-coated products in this sector will
return to previous levels, if not beyond.

Recent remarks from the CEO of Schlumberger (October
2021) were very positive about the outlook for the oil &
gas sector:

‘…the strengthening industry fundamentals, combined
with the actions of OPEC+ and continued capital
discipline in North America, have firmly established
the prospects of an exceptional multiyear growth
cycle ahead’ and ‘…our confidence in the onset of an
exceptional growth cycle is reinforced.’

Also, in October 2021 the CEO of Halliburton stated:

‘…I see a multi-year upcycle unfolding.’

Alternative Energy

The Group is committed to increasing the proportion
of revenue generated from the alternative energy
market. Sales to a manufacturer of product for the
solar cell industry are expected to increase as this
company expands considerably its production facilities
in response to increasing demand. Sales and marketing
resources have been allocated to identify technologies
and components that would benefit from Hardide
coatings. Sectors of interest include solar, hydrogen,
geothermal, nuclear, gas and wind turbines.

Power Generation and Precision Engineering

Currently, the Group is working on projects with five
power generation companies in the UK and EU. These
will be based on our recently-patented coating for
blades and vanes used in turbines.

In the first months of FY22, blades are already being
coated for a major European manufacturer of steam
and gas turbines. These are for installation in early
2022 into a high efficiency, low emission gas turbine.
Coating these blades and other applications currently
in development, can only be undertaken because of
the recent installation of Hardide’s new, larger-capacity
coating reactor and the larger pre treatment line in the
UK.

Field trials of coated steam turbine blades were
scheduled by EDF Energy for 2022, but have been
delayed by the pandemic. Meanwhile, the customer is
conducting further performance tests.

Demand for our coated components for high speed
X-ray baggage scanners remained stable throughout
the year.

Production, Technology, Research & Development
and Accreditations

In August 2021, the last remaining coating reactor in
our former site was relocated to the new facility, and
this has enabled the Group to reduce its emissions and
environmental footprint. New equipment and methods
of waste treatment were established in the new facility,
thereby reducing significantly the environmental
impact of our manufacturing processes. The use of
natural gas has been eliminated at the new site and
all electricity there is supplied from a REGO-certified
(Renewable Energy Guarantees Origin) source. Four
electric vehicle (EV) charging points were installed for
staff use.

The new UK site and the US facility are both accredited
to the aerospace quality management system
AS9100D/ISO9001. The new Bicester facility is also
accredited to Nadcap’s ‘Merit Status’, and to the
environmental standard ISO14001.

Fundamental research continues into the development
of new coating variants with potentially revolutionary
properties that would open up new markets for Hardide.

Intellectual Property

Registration of our most recent patent is underway in
ten leading industrial countries. This new patent covers
the further-enhancement of the Hardide coating and
new applications, including turbine blades and vanes.

STRATEGY1

Hardide is a ‘technology development’ Group that
designs and deploys a range of very high performance
coatings for use on metal components that operate
in harsh, extreme or safety-critical conditions. New
customers, applications and industries are being
developed that are proving the worth and robustness of
the technology.

The Group’s P&L demonstrates clearly a high
operational gearing. This means that the rate of
change in EBITDA is markedly greater than that for sales.
Before the COVID-19 pandemic badly affected demand,
sales revenue was on a strong upward trajectory.
However, there has been a sharp increase in order
intake during the latter months of FY21. This will lead to
considerable improvement in performance during the
first quarter of FY22. As a result, we are seeing now the
positive aspects of operational gearing. In addition, the
increased number of customers and diversity of market
sectors will lead to much better capacity utilisation and
lower volatility of demand.

Operational gearing established clearly over time in
the P&L, a more diverse customer base; together with a
higher volume and lower volatility of sales, will lead to
a much-enhanced financial performance. Therefore,
the Group’s main objective is to increase volume by
continued and strong business development activities
at the same time as maintaining high margins.

1 A more-detailed and forward-looking description of the Group’s business strategy is set out in a separate section in this Annual Report

Chairman's and CEO's Report

Investment in marketing, business development,
equipment and R&D will continue.

In summary, although a good improvement in financial
performance has been slow in coming, the Board now
has a well-founded and positive view of Hardide's
potential for profitable growth.

EMPLOYEES AND STAKEHOLDERS

The last 18 months have been extremely challenging
for our employees. They have had to navigate the
uncertainty and change brought about by the
pandemic, at home and in the workplace. The
Board would like to thank our people for their hard
work, flexibility and positive attitude in such difficult
circumstances. We are pleased that we were able to
utilise the support packages available in the UK and US,
meaning that we did not have to reduce the number of
our employees.

The Board also thanks shareholders and other
stakeholders for their continued loyalty and
encouragement.

OUTLOOK

Demand is now resurgent across all our sectors, and
we have a healthy pipeline of exciting opportunities in
current and new markets. Test programmes that have
been on hold or slowed by the pandemic are once
again gathering pace.

Rising global demand for energy, and the increasing
oil price, provide favourable conditions for the return of
strong revenues from our oil & gas customers. Recovery
in the aerospace market is forecast to strengthen in
2022 and beyond, and the Board expects revenues
from the coating of multiple aerospace parts and
turbine components. Also, we look forward to successful
developments in the EV market.

The continuing growth in our order book and the strong
first quarter of FY22 give the Board confidence that
revenues will strengthen markedly, and therefore the
Group’s financial performance will improve significantly
in FY22. The Board continues to monitor carefully the
Group’s projected cash position and believes that its
reserves will be sufficient for the foreseeable future.

Robert Goddard
Chairman

Philip Kirkham
CEO

14 February 2022

End-users of Hardide’s coatings experience
considerable benefits. Among other things, these
include some or all of: reduced maintenance costs,
lower environmental impact, enhanced corrosion
resistance and durability. In many cases, these features
provide the customer with significant competitive
advantage. Moreover, there are high barriers to
replacement of many of Hardide’s coatings once they
are in use. In such cases, there would be considerable
switching costs for the end user. Taken all together,
these features can make it very hard for a competitor to
displace Hardide’s coating.

Over recent years, the Group has developed three-way
partnerships with end-users of Hardide’s coatings and
their Tier 1 suppliers, and is seeking further opportunities
for such push-pull marketing.

The Group’s high operational gearing supports
strongly its strategy to continue investment in business
development, marketing and technology. Also, there
is great strategic advantage in our robust portfolio of
patents, coupled with the unique knowledge and skills
embedded among our staff and not found elsewhere.
Together, these are part of our Core Competence,
which creates sustainable competitive advantage.

Core Competence

In summary, the Group’s Core Competence is made up
of:

• unique and valuable technology;

• strong IP;

• technical and operational knowledge embedded in

employees;

• high switching costs for customers; and

•

long-term relationships with customers and end
users.

In this context, the definition of ‘Core Competence’ is
the set of features or competitive advantages that
provide potential access to a wide variety of markets,
make a significant contribution to benefits perceived
by the end user and are difficult or impossible for
competitors to imitate.

Strategic Progress

The Group continues to increase the number of
its customers at the same time as diversifying its
customer base and target industries. Regular demand
from Airbus and other aerospace customers is
expected to commence soon, and the coating of
turbine blades for power generation has already
resulted in our first order from that industry. In addition,
the Group is working on a new opportunity with a large
electric vehicle manufacturer.

Meanwhile, there is now a strong pipeline of prospects
for exciting short- and medium-term opportunities with
turbines and in the alternative energy sector; together
with new applications in oil & gas industries.

Financial Review

FINANCIAL REVIEW

STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF FINANCIAL POSITION

Non-current assets reduced by £900k during the year.
This is primarily driven by the depreciation on owned
and ‘right of use’ assets referred to above, partially
offset by a net capital investment of £299k in the new
site.

Inventories were £504k (2020: £565k), a reduction
of £61k. The most significant element of inventory is
process gas, and the movement reflects the timing of
deliveries to site compared to 2020. Trade and other
receivables increased by £97k to £583k. This reflects
an improvement of sales over the final 2 months of the
year compared to the equivalent period in 2020.

During the year, the Group repaid the full amount of
the original US$150k Commonwealth Development
Opportunity Fund grant from the Virginia Tobacco
Commission as the directors concluded that the
eligibility criteria would not be met.

In February 2021 the Group raised £0.76m, net of
expenses, through equity fundraising. It raised a further
£250k in February 2021, and another £250k in April 2021
through the Government backed Coronavirus Business
Interruption Loan Scheme (“CBILS”). Subsequent to
the year end, in January 2022 the Group raised $438k
(£325k) through asset finance.

Cash balances at the end of the year were £1.54m
(2020: £2.72m).

Simon Hallam
Finance Director

14 February 2022

Sales revenue for the year reduced by 24.4% to £3.60m,
down from £4.76m in the prior year. The impact of
the COVID-19 pandemic on our key end markets, in
particular oil & gas, saw sales in the first half of the year
of £1.78m (H1 2020: £3.02m), increasing slightly to £1.82m
in the second half (H2 2020: £1.74m).

With a substantial element of cost of sales relatively
fixed, particularly production salaries, the reduced
sales had a detrimental impact on gross margins. The
delivered gross margin was consistent over both H1 and
H2, at 37% and 36% respectively. Overall gross margin
for the year was 36% (2020: 49%).

As a consequence of the lower sales, cost of sales
fell by 6.2% to £2.29m (2020: £2.44m), reflecting the
reduction in variable costs, primarily the principal gas
used in the production process.

Share based payment charges of £202k (2020:
£86k) have been treated as an exceptional charge
and consequently the prior year results have been
restated. Therefore, administrative expenses increased
marginally by 0.7% to £2.80m (2020: £2.78m as restated).
This was down to a number of benefits received in 2020
that were either not repeated, or only partially repeated,
in 2021. For instance, there was no grant income
(2020: £121k) from the National Aerospace Technology
Exploitation Programme (NATEP), and the support from
the US Small Business Association’s Paycheck Protection
Program amounted to US$149k (2020: US$200k).

The Group’s depreciation charge on owned assets
increased to £854k (2020: £477k) following the
relocation and commencement of full production at
the new site in Bicester towards the end of the previous
financial year. Depreciation on ‘right-of-use’ assets
was £280k in the year (2020: £288k), and finance costs
on right-of-use assets were £87k (2020: £91k). A further
charge of £30k in respect of dilapidation costs was
recognised, which was expected to occur relating to the
old premises in Bicester.

The Group loss before interest, tax, depreciation and
amortisation (EBITDA) for the year amounted to £1.48m
(2020: £0.46m as restated). Despite the impact of the
pandemic, our Martinsville facility continued to increase
sales, with a 13.5% increase from 2020 (at constant
currency), and consequently achieved an EBITDA profit.

Hardide is
committed to
reducing its
emissions to the
environment in
every aspect

Opportunities for the Hardide coating

have never been more relevant as the

world looks to industry to initiate and

support measures to limit climate

change, waste and pollution. Use of the

Hardide coating increases the life and

performance of metal parts in high-

wear and high-value applications,

thereby reducing waste, energy

consumption and end-of-life pollution.

Our coatings provide solutions to

problems that previously would have

required a hazardous and

environmentally damaging coating

process that is now restricted under EU,

UK and US health, safety and

environmental regulations.

Strategic Report

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, customer industries and customers, and

ultimately to high, growing and consistent profits.

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, there is a focus on investing to grow revenues

steadily and significantly so that, because of the Group’s high operational gearing, gross profit is

maximised.

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 so is far less

vulnerable to fluctuations in demand from any one customer.

OPERATIONS

Despite the COVID-19 pandemic, the move to new
premises in Bicester was completed successfully. There
are now five reactors installed there, including one that
will accommodate components 50% larger than the
others.

The successful establishment some five years ago of
our coating facility in the US continues to serve the
large North American market. Additionally, having a
geographically separate production facility provides
greater security of supply for customers. 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.

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.
However, it is not nearly as well-known as other
high-performance coatings. Therefore, Hardide will
continue vigorously with its programme of high-level
technical presentations and attendance at trade fairs
and conferences (pandemic restrictions permitting).
Greater use will be made of email campaigns and
a range of channels such as trade press and social
media will continue to be used to the full extent that
resources permit.

Customer and industry diversification

As well as increasing sales, the customer and industry
diversification element of the Group’s strategy is a
major consideration.

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.
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. Normally,
this sector tends to be slightly counter-cyclical to the oil
& gas sector and helps balance our portfolio of industry
sectors.

Power generation is a large non-cyclical industry.
Within power stations, 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. An initial order from a large
European manufacturer of industrial gas turbines has
been received and is currently being processed at
the UK site. This has great potential for future business.
Sales of the newly-patented coating for turbine blades
will diversify considerably our customer base.

PRODUCT RANGES, CUSTOMERS AND MARKET
CHARACTERISTICS

The Group classifies its applications into five sectors:
Energy (conventional and alternative), Aerospace, Flow
Control, Power Generation and Precision Engineering.

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.

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.

Recognising the shift towards alternative forms for
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

Strategic Report

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. Testing is
also underway to prove the beneficial properties of our
coating for the expanding hydrogen market.

Battery technology for the electric vehicle (EV) market
is developing rapidly and we are in the early stages
of development and testing with a large US-based
EV manufacturer on components used in the battery
manufacturing process.

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.

Flow control

Flow control remains our second largest market sector,
with sales largely to a very large North American pump
customer, whose customers are not in the oil & gas
market. Apart from this, the need for high-performance
coatings for severe-service pumps and valves tends
to be project-based and therefore demand is uneven
and also somewhat dependent upon demand from the
oil & gas, and petrochemical markets. The flow control
sector is important to the Group and we will continue to
develop it.

Precision engineering

The potential for Hardide sales to this very large
sector 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 to seek new specialist
applications in this market sector.

Power generation

The first large order for coating blades for gas turbines
resulted from four years of development with a major
European turbine manufacturer. We expect further
substantial orders to follow during FY22. We are
making progress with EDF Energy and other turbine
manufacturers on testing our newly-patented coating;
although progress slowed considerably during the last
year because of the pandemic. 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.

INTELLECTUAL PROPERTY, PRODUCT
DEVELOPMENT AND R&D

A new UK patent was granted in November 2019 for the
protective coating of blades and vanes used in the
power generation and aviation industries. Equivalent
registration of this patent is currently underway in
ten major industrial countries. The granting of this
patent also enhances considerably and extends the IP
protection of existing patents.

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.

PARTNERING

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.

Joint application developments 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.

RISK

As a proportion of total sales, those to the oil & gas
industry will continue to be significant in the short- to
medium-term as sales are developed with the major
oil & gas customers. Reducing the proportion of the
Group’s sales to relatively few major customers is an
ongoing strategic aim for the Group.

In the past, cessation or delay of customers’ test
programmes has inhibited Hardide’s growth. 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 also
a risk that the Group devotes significant application
development time and technical resources to test
programmes that do not result in sales. 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.

Loss of key technical personnel is a risk for the Group.
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.

Strategic Report

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.
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 with other
potential customers. 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.

A risk also arises from the effect of 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 5% of Group turnover, so a change
in demand from Europe would have an insignificant
effect.

A major incident could lead to the temporary closure
of a coating plant, resulting in disruption to service.
All operations are carried out to the relevant AS9100
Quality Management System and in the UK to 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, including IT and 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.

CASH

The fund raising completed successfully in February
2021 together with the two CBILS loans strengthened
our balance sheet. Revenue expense has been severely
trimmed in response to the reduced revenue. However,
reduction of key staff would damage severely our rate
of recovery and future growth. Accordingly, there is no
plan to do this. Management will continue to monitor
cash diligently.

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 for the
foreseeable future. Nonetheless, on 19th January 2022,
the Group raised $438k (£325k) through asset finance
with The American National Bank and Trust Company,
Hardide Coatings Inc’s US bankers.

PARTICULAR STRATEGIC CHALLENGES

Planning for increases in capacity

Despite their best efforts, 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. The 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. This is particularly important for large reactor
capacity at Bicester, where we have only one such
reactor. 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.

Section 172

SECTION 172

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 duties under

section 172(1). These are dealt with below, although essentially they are embedded in the Corporate

Governance section of this Annual Report.

Likely consequences of any decision in the long
term

Take account of the Group’s operations on the
community and the environment

Senior managers for part of the time, and directors
participate in the Group’s strategic planning process.
The centre point of this exercise is a yearly strategic
planning meeting that looks out over five years. 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. 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. Grievances
may be raised in confidence with any director. 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 frequent staff briefings,
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.

The most critical ‘bought-in’ supplies for production are
electricity and the gases used in the coating process.
Together, these account for the great majority of
variable production costs. Internationally, the primary
process gas is deemed to be a strategic material. Since
this is a commodity, the Group reviews regularly its
supply arrangements. It has not been found useful to
develop a relationship with any particular supplier of
electricity.

The move to new premises allowed the replacement
of a number of pre-existing pieces of plant with new
ones. Some of these items have 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 airfreight3 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 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. In addition, all shareholders
with 1% and over of total equity of the Group are
encouraged annually by way of a personal letter from
the Chairman inviting them to contact him or the SID if
they have concerns.

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
those applicable to the UK facility.

2 This can be viewed on our website.

3 As an example, most of the components to be coated for North American customers are shipped from them and then returned.

In our UK facility,
we have totally
eliminated the use
of natural gas

In the selection of 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.

Board of Directors

THE BOARD OF DIRECTORS

Robert John Goddard

Philip David Kirkham

Simon Andrew Hallam

Chairman

Chief Executive Officer

Finance Director

Simon was appointed Finance
Director on 20th April 2020. Simon
is Company Secretary and a
member of the Sustainability &
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

Robert was appointed as
Chairman in January 2008. He is
chairman of the Audit Committee
and the Sustainability & 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 was appointed Chief
Executive Officer on 1st September
2012. Philip is a member of the
Intellectual Property Committee
and the Sustainability & 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

Board of Directors

Dr Yuri Nikolaevich Zhuk

Andrew Richard Boyce

Timothy Julian Rice

Technical Director

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, Director - The
International Centre for Birds of
Prey.

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 include non-
executive director of TDCM Ltd,
manufacturer of electric motors
for the automotive sector,
electric two-wheeler and leisure
markets, where he is chair of the
Remuneration and Nominations
Committee.

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.

In creating our US
facility, we have
eliminated very
large quantities
of CO2 emissions
from the supply
chain.

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 the overall ‘carbon footprint’.

Report of the Directors

REPORT OF THE DIRECTORS

RESULTS

The Group loss for the period, after taxation, amounted to £2,802,000 (2020: £1,291,000 loss). The directors have declared
that no dividends will be paid in respect of the 2021 financial year (2020: Nil).

DIRECTORS

The present membership of the Board is set out on pages 20-21, 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

30 September 2021

30 September 2020

Robert Goddard

28 January 2008

Andrew Boyce

18 June 2012

Tim Rice

20 March 2018

Philip Kirkham

1 September 2012

Yuri Zhuk

14 March 2005

Simon Hallam

21 April 2020

471,532

27,625

117,672

166,736

406,807

17,916

101,490

157,027

In addition to the share Andrew Boyce holds in his own name, he also represents family and trust holdings totalling
6,988,231 shares. No director had, during or at the end of the year, a material interest in any contract which was
significant in relation to the Group’s business.

The Group’s key management personnel comprise the directors and senior managers who report to the CEO.

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.

Report of the Directors

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 Sustainability & Risk Committee, further details
about which appear on page 30.

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 continued disruption caused by 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
2022 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 reasonably 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 2021 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

Executors of A Badenoch & Associates

Amati Global Investors

P Evershed

Unicorn Asset Management Ltd

Executors of W S C Richards

T Simpkin

Shareholding

7,956,299

6,988,231

5,600,000

4,521,963

3,185,620

3,179,610

2,197,652

2,088,740

14.2

12.5

10.0

8.1

5.7

3.9

3.7

R J Goddard
Director

14 February 2022

Corporate Governance Statement

CORPORATE GOVERNANCE STATEMENT 2020-21

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

The Group has adopted formally the QCA Code published in April 2018. It remains the policy of the Board to comply with
the Code wherever it is practicable to do so. The following statements set 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.

Board Meetings1

NEDs only

Meetings of Board Sub-committees2

Scheduled
Monthly

Additional

Audit3

Remuneration
& Nomination

Risk

Intellectual
Property

R J Goddard

P D Kirkham

S A Hallam

Y N Zhuk

A R Boyce

T J Rice

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.

3 A second meeting, applicable to the FY21 reporting year, was held after the end of the financial year

Non-executive director only meetings

Two ‘NEDs-only’ meetings 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 the 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 for
Executive directors.

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 these Committee meetings are
included in the papers for the first Board meeting
following each Committee 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
may be done by a directors’ resolution in writing.

From time to time 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
a Board decision. This includes the appointment of
directors, any raising of funds, the setting of high-
level targets, approval of budgets, strategy, 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

Each 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 strategy can be found in this
Annual Report.

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, trade
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. 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 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.

Normally, the Board reviews Mr Goddard’s activities
outside of Hardide. However, there has been no change
in Mr Goddard’s since the previous year. Accordingly no
formal acceptance by the Board of his outside interests
has been needed. The Board remains satisfied that
none of these activities conflict with Mr Goddard’s role
as Chairman of Hardide. The same applies to the other
non-executive directors.

The ‘independence’ of each non-executive director has
been assessed in FY21 by four, single purpose ad hoc
committees of directors. Excluded in turn from these
meetings was the non-executive director in question.
As in previous years, 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 all
the other Board directors to be ‘independent’.

Number of directors

In the past year there has been a total of six directors
and three of these are non-executive. Tim Rice remains
the senior independent director (‘SID’). In addition, and
in compliance with the Code, Tim Rice is the chairman
of the Remuneration & Nomination Committee. The
chairman of the Audit Committee is 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 encouraged to contact him outside those
meetings. The Chairman or the SID relays shareholder
opinion to the non-executive directors or the full Board,
as appropriate.

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;
together with high-level ‘people issues’.

This year has seen the start of the process of face-
to-face, one-to-one confidential meetings dealing
with the performance of Chairman and each of the
non-executive directors. In these meetings the two
participants give their views of the other's performance
and identifies if there are aspects meriting attention.

Corporate Governance Statement

These meetings are private and not minuted.

iii set the overall rules for corporate governance and

Any director may have access to independent
professional advice at Group expense. So long as the
matter concerns the business of the Company.

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 and
other adjustments that result inevitably from growth in
a high-technology company. The directors are well able
to support the changes that will arise and deal with the
challenges of such growth.

Roles of CEO, Senior Independent Director and
Chairman

Presently, Hardide is a small company and so 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 held on a frequent basis throughout
the year. 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 the 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:

Ensure effective communication with shareholders;

ii be available for private meetings or calls with

principal shareholders1;

ensure compliance with these;

iv lead the development of Corporate Strategy;

v ensure effective and open communication among

directors; particularly at Board meetings;

vi chair the Audit Committee and the Sustainability &
Risk 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 undertake a performance
planning exercise and agree annually on a set of
objectives for the CEO. This is shared with other
directors. These objectives are taken into account 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 and responsibility for the skills
and behaviour needed to meet those objectives
is identified. Thereafter these are taken account of
during 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 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

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.

Corporate Governance Statement

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 MBAs
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. Two
directors are Chartered Engineers.

Company Secretary

At present, the Finance Director (Simon Hallam) also
acts as the Company Secretary. The directors consider
that to be acceptable. This is on the grounds of the
size of the Group, 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
the Chairman, CEO and Remuneration & Nominations
Committee agree on action in respect of the roles
covered by the plan.

Terms of appointment of non-executive directors

The non-executives’ principal terms and conditions
are available for inspection by shareholders ahead of
any general meeting of the 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, each of whom 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 chairman of Board Committees are
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 Andrew Boyce and Tim Rice,
with the latter as chairman . It meets at least quarterly.
In this financial year it met seven 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
overall value of such awards, the individual awards
to directors and other senior managers and the
performance targets to be used;

iv ensure that contractual terms on termination, and

any payments made, are fair to the individual and to
the 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. Often, 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.

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.

Corporate Governance Statement

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;

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 Sustainability & Risk
Committee operates, review the work of that
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
has reviewed its safeguards and policies in place
for non-audit services and is satisfied that these are
sufficiently robust to ensure that James Cowper Kreston
maintain their objectivity and independence. James
Cowper Kreston report to the Board annually on their
independence from Hardide plc. Non-audit services are
provided only if such services do not conflict with their
statutory responsibilities and ethical guidance.

Currently, the size of the Group does not 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 2021,
which was their fifth year acting as the Group’s auditors.
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.

Sustainability & Risk Committee

The Board has overall responsibility for the Group’s
system of management of sustainability and risk, and
does so in cooperation with its Sustainability & Risk
Committee. The Committee’s role is to identify the
strategic, operational, environmental 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 and
environmental risks.

The members of this Committee, which meets
quarterly, are Robert Goddard (Chairman), Philip
Kirkham, and Simon Hallam. Reports of the Committee
and its assessment of sustainability and risks are made
to the Board and the Audit Committee. Descriptions of
the principal matters 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, SOCIAL AND GOVERNANCE
(‘ESG’)

The reporting year has seen the completion of the
transfer of Hardide’s UK operations to its nearby site
in Bicester. The premises are newly-built on a modern
industrial estate and well away from any residential
areas. Replacement of some existing and substantial
items of equipment with types that have much-
improved emission control measures and lower
environmental impact have been in place for the full
reporting year. The same applies to low-energy lighting.

Also during the reporting year, reviews have taken place
of procedures for the safety for staff and visitors and
general working conditions.

Corporate Governance Statement

Until now, it would not have been sensible to attempt
the creation of environmental benchmarks such
as estimated emissions of CO2 or waste. Now, the
benchmarks have been established and these appear
in the ESG section of this document.

It should be noted that, since the new premises has
been equipped with equipment having excellent
environmental credentials, it may prove difficult to
improve on environmental performance; at least in
the near term. Nonetheless, the Group will seek out
opportunities to do so.

Whilst Hardide 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 where appropriate and more frequent
and rigorous cleaning regimes. Where still able to fulfil
their function, certain staff have been able to work from
home and others have been ‘flexibly-furloughed’ to
minimise 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 involved
in their processes. A statement to this effect may be
found on the Group’s website.

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 did they have 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

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 criteria relating to directors’ new share
options are disclosed in an RNS notice.

Corporate Governance Statement

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.

Non-executive Directors

The service contracts for non-executive directors are
terminable at one month’s notice either way.

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 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:

Its nominated adviser, brokers, 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.

BRIBERY ACT, 2010 (THE ‘ACT’) AND UNETHICAL
BEHAVIOUR

The Group has in place a full ’Anti-bribery Policy’, and
this is 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 raise, in confidence with
any director, their 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 of 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. Adherence
to this regulation is facilitated by software that, among
other things, maintains insider lists and can provide
data 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 UK GENERAL DATA PROTECTION REGULATION
(‘UK-GDPR’ OR ‘REGULATION’) AND THE UK DATA
PROTECTION ACT 2018

These EU Regulations originally came into effect in May
2018 and subsequently adopted into UK law in January
2021 upon Brexit. All the procedures and proper records
are in place to achieve and demonstrate compliance.

FORMULATION OF STRATEGY AND BUSINESS MODEL

A high-level description of the Group's business model
and strategy appears in the Strategic Report section
of this Annual Report. Also, there is a summary 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.

Corporate Governance Statement

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.

Both UK and US sites are accredited to aerospace
Quality Management System AS9100 RevD, and
ISO9001:2015. The UK site is also accredited to the
international Environmental Management standard ISO
14001:2015 and to Nadcap (National Aerospace Defense
Contractors Accreditation Program).

On behalf of the Board,

Robert Goddard
Chairman

14 February 2022

CYBER SECURITY

The Group has strong and regularly updated cyber
security systems. It has an ongoing contract with an
external specialist cyber security company and is
accredited to the government-backed Cyber Essentials
Plus 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 the 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, or 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. This includes 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. 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. On request, hard
copies of Hardide’s Annual Report are available from
the Group.

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.

From time to time, all staff are invited to briefings where
the CEO presents, explains, and responds to questions
about, important developments in the Group or its
environment.

Hardide coatings
significantly
improve a
product's working
life, thereby
reducing waste
and environmental
impact

They also improve efficiency, reduce

downtime and extend service intervals

which brings environmental benefits.

Environmental, Social and Governance

ENVIRONMENTAL, SOCIAL AND GOVERNANCE

OUR PHILOSOPHY

At all times, the Group aims to maintain its operations in a safe, environmentally conscious

and socially responsible manner, taking into account the needs of stakeholders. These include:

shareholders, members of staff, suppliers, customers and the local community.

Our approach considers the effects that we have on the environment and their significance. We set

objectives and targets to minimise any impacts.

Governance

We endeavour to follow the Task Force on Climate-Related Financial Disclosures (‘TCFD’) model on sustainability.

Climate-related risks and opportunities are overseen by our Sustainability and Risk Committee, which reports to the
Board on a regular basis.

An important part of our governance is to ensure that our policies, procedures and actions conform to the standards
required under our Environmental and Quality Assurance accreditations: ISO14001, ISO9001 and AS9100.

Strategy

In 2021 we undertook a baseline review of our activities and emissions to set our future environmental targets which
consider the following key areas:

1. Environmental Management

2. Policy

3. Waste Management

4. Energy & Water

5. Transport

6. Sustainable Procurement

7. Community

8. Health & Safety

9. Staff Welfare

For the purpose of setting objectives and targets the significant aspects are the following areas:

A. The use of electricity

B. Water consumption

C. Use of Volatile Organic Compounds (VOCs)

D. Waste generation

E. Effluent drain discharge

F. Emissions to atmosphere

G. Transport

H. Decommissioning of our former premises

I. Effect on local community

Our environmental objectives and targets are available on the company website.

Risk Management

Hardide does not purchase raw materials, except for process gases and small amounts of various metals used as part
of the process. For a few of our customers we buy-in the component in addition to coating it.

Cyber security is an important part of our operations and we have invested heavily in state-of-the-art protection for
our IT systems and on staff training. Our IT systems have been certified to the government-backed Cyber Essentials Plus
standard.

Metrics

The move to the new UK facility was completed in summer 2020, hence comparisons with metrics that include the old
facility are meaningless. As a result, FY21 metrics are considered a baseline against which to compare progress. The
metrics shown below are the aggregated values from the UK and US sites.

Environmental, Social and Governance

ENVIRONMENTAL

Hardide is committed to reducing its emissions to the environment in every aspect. In the selection of equipment at
Hardide’s new facility in Bicester, special attention was paid to identifying equipment and methods of waste treatment
that reduce the environmental impact, 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.

In our new UK facility, we have eliminated the use of natural gas, and all electricity is now supplied from a renewable
REGO-certified (Renewable Energy Guarantees Origin) source. The only use of natural gas is at our US facility in
Martinsville where it is used for workspace heating.

In creating our US facility we now coat parts for North American-based customers in the US, rather than in the UK,
thereby avoiding double freight transits across the Atlantic and considerable emissions of CO2.

Hardide’s products greatly increase the life of customers’ components by reducing wear and enhancing corrosion
resistance, with customer and test reports of over a hundredfold increase in useful operating life. They also help
improve efficiency and provide further benefits to end-users that include reduced downtime and extended service
intervals. Each of these features bring environmental benefits.

Hardide’s coatings are non-toxic and are environmentally compliant. Used to replace hard chrome plating (HCP) on
components, they eliminate the health hazard that the production of HCP presents and reduce the amount of toxic
chrome sludge in landfills, which pose threats to both soil and groundwater. Hardide can be used instead of high-
velocity oxy-fuel (HVOF) thermal spray coatings, which can contain cobalt. The use of cobalt is currently under review
by the European Chemicals Agency and is thought likely to be restricted or possibly banned in the future.

Electricity usage

Total electricity used (kWh)

Intensity ratio: kWh/£m sales

CO2 Emissions

Total CO2e emissions (t)

Intensity ratio: tCO2e/£m sales

Water

FY21

1,403,769

389.9

FY21

547.8

152.2

Any water used in the coating process is filtered, stored in interception tanks and before discharged to drain, is
analysed to ensure compliance with permitted limits. All gaseous emissions are passed through a series of wet
scrubbers to ensure that there are no harmful emissions to atmosphere. The resulting wastewater is treated and tested
as above. Regular testing of discharges to drain are taken and analysed by the local water companies.

Water usage

Total water used (m3)

Normalised usage (m3/£m sales)

Environmental Management Systems

FY21

198.4

55.1

Our site in Bicester is accredited to the requirements of ISO 14001:2015 and subjected to regular internal and external
auditing. The Martinsville facility complies with the requirements of the local Public Service Authority (PSA) and the State
of Virginia Department of Environmental Quality (VDEQ). Regular auditing and sampling of discharges to drain takes
place.

Waste

Most customer parts for coating arrive in packaging which is reused to return the parts to the customer. Only a small
amount of waste is sent to landfill and consists of such items as general office waste, non-reusable packaging and
plastic containers from suppliers.

Metal residue resulting from the coating process and any metal used in masking and tooling of the products is
segregated and sold to metal recycling companies.

Environmental, Social and Governance

All chemical process waste is stored and collected by specialist chemical waste disposal companies. All waste is
segregated into waste streams and disposed of in accordance with local regulations. Waste transfers are recorded,
verified and audited.

Landfill Waste Generated

Total waste to Landfill (t)

Normalised (t/£m sales)

Volatile Organic Compounds (VOCs)

FY21

27.3

7.6

Prior to processing, Perchloroethylene (‘Perc’) is used to remove any oils and greases on parts received. This is essential
for the coating process to be successful. We have installed a new, sophisticated solvent cleaning machine which
cleans and then re-generates the solvent, thus ‘top-up’ with fresh solvent is required only rarely. VOC usage has been
reduced from c.600kg per year to virtually zero. During FY22 we are developing a plan to upgrade the Perc machine at
the Martinsville facility also.

Transport

Customers are responsible for the transport of their goods both to and from our facilities, so Hardide has no influence
on the choice of transport or routing.

Electric Vehicles

We are encouraging and supporting our employees in the move towards electric vehicle (EV) use and have installed
four EV charging points at our Bicester site.

SOCIAL

Health & Safety

Hardide’s priority is the health, safety and well-being of its employees, visitors and contractors. In addition to First
Aiders, Hardide has trained Mental Health First Aiders to support our staff’s mental wellbeing. To maintain physical
health, we have an external Occupational Health provider which undertakes regular testing of our employees. We also
enrol all staff into a Health Payment Plan which includes access to a 24-hour medical helpline.

Work Related Lost Time Incidents

Total lost time incidents

Incident rate*

FY21

2.37

Lost time incidents are classed as >1 day absence following day of incident. Incident rate is defined as the number of lost time incidents
per 100,000 hours worked

Diversity

Directors

Staff

Total group

Nationality

Males

Females

Total

Male %

Female %

100

91.1

92.2

8.9

7.8

Nine nationalities across the Group

Employee turnover rate

10.8%

Pay equity - CEO pay as multiple of median UK earnings

6.13

Environmental, Social and Governance

Local Community

Hardide is a socially-responsible Group and monitors its effect on local communities and society in general.

Our new facility is located at an industrial estate away from any domestic housing, thereby eliminating noise that
might otherwise affect the local community.

We work actively with a local school to support Year 7 students with their STEM projects.

COVID-19

The Group has taken precautions to protect all its employees, 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 and more frequent and rigorous cleaning regimes. Where appropriate, and to minimise the
number of staff on-site at any one-time, some staff have been able to worked from home and some were ‘flexibly-
furloughed’ during the year.

GOVERNANCE

Key Metrics

Are the CEO’s and Chairman’s roles split?

Adheres to QCA Corporate Governance code?

Percentage of non-executive directors on board

Has an Ethics Policy?

Has an Environmental Policy?

Has a Discrimination Policy?

Responsible Business Ethics

Yes

50%

Yes

Well before The Bribery Act 2011 (The Act) came into force, the Group had in place a full ’Anti-Bribery Policy’, and also a
’Whistleblowing Policy’. Under guidelines set by the Board, a designated Group Compliance Officer, who reports to the
Board, manages the processes and procedures that flow from these policies; in particular the areas perceived to be
most at risk from bribery or behaviour that is fraudulent or unethical. Any member of staff may raise in confidence,
with any director, concerns about financial or other impropriety. 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
Employee Handbook. Annually, all staff are required to confirm that they have read, understood and complied with
these. Hardide’s anti-bribery policy and guidance thereon may be found on the Group’s website.

Conflict Minerals

The Group has undertaken a due diligence exercise with suppliers of its key process gases which has confirmed that
conflict minerals are not used in their production.

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 2021 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 2021 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.

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.

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.

REVENUE RECOGNITION

Risk description

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

How the scope of our audit responded to the risk

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

• discussed the revenue recognition policy with

management and performed a walkthrough to
understand the revenue recognition process;

• examined a sample of revenue transactions by

reference to underlying contractual terms;

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

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.

• reviewed manual journals posted to the revenue

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

Independent Auditor's Report

• 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;

• 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

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

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

• considered the disclosures in the financial

statements regarding the recognition of grant
income.

Key observations

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

SHARE-BASED PAYMENTS

Risk description

The Group 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;

• gained an understanding through walkthroughs

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

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

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

• examined on a sample basis manual journals

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

• considered the value, nature and cause of

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

Key observations

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

PROVISIONS

Risk description

The Group leases property in the UK and completed a
move of premises in Autumn 2020 whilst completing
its term of lease on its former UK premises during the
year ended 30 September 2021. As detailed in note 15
to the financial statements, the Group has recognised
a provision for dilapidations of £80,000 (2020: £100,000)

Independent Auditor's Report

and a provision for an onerous lease of £4,000 (2020:
£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;

• performed recalculations on the provisions to check

the accuracy of the calculations;

• reviewed for additional sources of documentation to

assess for completeness of the provision; and

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 loss-based 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 £54,000
(2020: £71,000). Performance materiality of £38,000
(2020: £50,000) was applied for testing and it was
agreed with the Board that we would report on all audit
differences in excess of £2,700 (2020: £3,500), as well
as differences below that threshold that, in our view,
warranted reporting on qualitative grounds. We also
report on disclosure matters that we identified when
assessing the overall presentation of the financial
statements.

• considered the disclosures in the financial

statements regarding the provisions.

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

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.

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.

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,
capped at an allocation of Group materiality. Based
on our professional judgement materiality was set at
£54,000 (2020: £66,000). Performance materiality of
£38,000 (2020: £46,000) was applied for testing and it
was agreed with the Board that we would report on
all audit differences in excess of £2,700 (2020: £3,300),
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.

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 £54,000.

Materiality in the prior year was based on a pre-tax
loss-based benchmark.

CONCLUSIONS RELATING TO GOING CONCERN

In auditing the financial statements, we have
concluded that the Directors' use of the going concern
basis of accounting in the preparation of the financial
statements is appropriate.

Based on the work we have performed, we have not
identified any material uncertainties relating to events
or conditions that, individually or collectively, may
cast significant doubt on the Group's or the parent
Company's ability to continue as a going concern
for a period of at least twelve months from when the
financial statements are authorised for issue.

Our responsibilities and the responsibilities of the
Directors with respect to going concern are described
in the relevant sections of this report.

Independent Auditor's Report

OTHER INFORMATION INCLUDED IN THE ANNUAL
REPORT

The other information comprises the information
included in the Annual Report other than the financial
statements and our Auditor's Report thereon. The
Directors are responsible for the other information
contained within the Annual Report. Our opinion on
the financial statements does not cover the other
information and, except to the extent otherwise
explicitly stated in our report, we do not express
any form of assurance conclusion thereon. 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 course of the audit,
or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent
material misstatements, we are required to determine
whether this gives rise to a material misstatement in
the financial statements themselves. If, based on the
work we have performed, we conclude that there is a
material misstatement of this other information, we are
required to report that fact.

We have nothing to report in this regard.

OPINIONS ON OTHER MATTERS PRESCRIBED BY
THE COMPANIES ACT 2006

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

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

• the strategic report and the Directors’ report have

been prepared in accordance with applicable legal
requirements.

MATTERS ON WHICH WE ARE REQUIRED TO
REPORT BY EXCEPTION

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

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

• adequate accounting records have not been kept

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

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

• the financial statements are not in agreement with

the accounting records and returns; or

• certain disclosures of Directors’ remuneration

specified by law are not made; or

• we have not received all the information and

explanations we require for our audit.

RESPONSIBILITIES OF DIRECTORS

As explained more fully in the Directors’ responsibilities
statement set out on pages 24-25, 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.

AUDITOR’S 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 statements.

Because of the inherent limitations of an audit,
there is a risk that we will not detect all irregularities,
including those leading to a material misstatement
in the financial statements or non-compliance with
regulation. This risk increases the more that compliance
with a law or regulation is removed from the events and
transactions reflected in the financial statements, as
we will be less likely to become aware of instances of
non-compliance.

The risk is also greater regarding irregularities occurring
due to fraud rather than error, as fraud involves
intentional concealment, forgery, collusion, omission or
misrepresentation.

The specific procedures for this engagement that
we designed and performed to detect material
misstatements in respect of irregularities, including
fraud, were as follows:

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

14 February 2022

Consolidated Statement of Comprehensive Income

CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME

For the year ended 30 September 2021

Revenue

Cost of sales

Gross profit

Administrative expenses

Depreciation and amortisation of owned assets

Depreciation of right of use assets

Exceptional items:

Share based payments
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

18
15

2021

£ ’000

3,597

(2,286)

1,311

(2,795)

(854)

(280)

(202)
(6)

(2,826)

(17)

(87)

2020
as restated
£ ’000

4,756

(2,436)

2,320

(2,775)

(477)

(288)

(86)
42

(1,264)

(12)

(91)

(2,927)

(1,356)

125

(2,802)

(5.2)p

(87)

(2,889)

(1,291)

(2.5)p

(73)

(1,364)

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

Consolidated Statement of Financial Position

CONSOLIDATED STATEMENT OF
FINANCIAL POSITION

For Hardide plc, company registered number 05344714 at 30 September 2021

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 and dilapidations

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

2021
£ ‘000

5,700

1,881

7,686

504

583

442

1,543

3,072

10,758

702

208

201

1,145

1,927

738

1,911

2,699

3,844

6,914

3,942

18,854

(16,012)

562

(432)

6,914

2020
£ ‘000

6,337

2,130

8,586

565

486

395

2,715

4,161

12,747

906

193

116

1,351

2,810

407

2,046

106

2,559

3,910

8,837

3,836

18,196

(13,210)

360

(345)

8,837

The financial statements were approved and authorised for issue by the Board on 14 February 2022.

Robert Goddard
Chairman

Consolidated Statement of Cash Flows

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 30 September 2021

Cash flows from operating activities

Operating (loss)

Impairment of intangibles

Depreciation on owned assets

Depreciation on right of use assets

Share option charge

Decrease in inventories

(Increase) / decrease in receivables

(Decrease) in payables

(Decrease) in provisions

Cash used in operations

Finance income

Finance costs

Right of use asset interest

Tax received

2021
£ ‘000

2020
£ ‘000

(2,826)

(1,264)

836

280

202

(115)

(204)

(183)

(1,931)

(17)

(87)

464

288

126

388

(445)

(144)

(488)

(12)

(91)

Net cash used in operating activities

(1,936)

(504)

Cash flows from investing activities

Proceeds from sales of property, plant and equipment

Purchase of intangibles

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) 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

(4)

(313)

(299)

764

553

(101)

(273)

943

120

(1,172)

2,715

1,543

(33)

(4,133)

(4,166)

2,372

402

(75)

(221)

2,478

(2,094)

4,809

2,715

Consolidated Statement of Changes in Equity

CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY

For the year ended 30 September 2021

At 1 October 2019

Issue of new shares

Share options

Exchange translation

IFRS 16 adjustment

Loss for the year

Share
Capital
£ ‘000

3,673

163

Share Share-based
Payments
£ ‘000

Premium
£ ‘000

Translation
Reserve
£ ‘000

Retained
Earnings
£ ‘000

15,987

2,209

274

(272)

(11,964)

(73)

(1,291)

(13,210)

Total
Equity
£ ‘000

7,698

2,372

(73)

(1,291)

8,837

At 30 September 2020

3,836

18,196

360

(345)

At 1 October 2020

Issue of new shares

Share options

Exchange translation

Loss for the year

3,836

106

18,196

658

At 30 September 2021

3,942

18,854

360

202

562

(345)

(13,210)

8,837

(87)

(432)

(2,802)

(16,012)

764

202

(87)

(2,802)

6,914

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 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 2022

•

IFRS 3 – Business Combinations – references to
conceptual framework

• Amendments to IAS 16 – Proceeds before intended

use

• Classification of liabilities as current or non-current

(amendments to IAS 1)

• 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
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.

Notes to the Group Financial Statements

Revenue recognition

Research and development

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.

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.

Notes to the Group Financial Statements

Property, plant and equipment

Leases – IFRS 16

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.

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.

Notes to the Group Financial Statements

Financial liabilities and equity

Share-based payments

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

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

Finance costs and gains or losses relating to financial
liabilities are included in the income statement. The
carrying amount of the liability is increased by the
finance cost and reduced by payments made in
respect of that liability.

An equity instrument is any contract that evidences
a residual interest in the assets of the Group after
deducting all of its liabilities. Dividends and distributions
relating to equity instruments are debited directly to
reserves. Equity instruments issued are recorded at the
proceeds received, net of direct issue costs.

Cash and cash equivalents

Cash and cash equivalents include cash at bank and in
hand, and short-term deposits with an original maturity
period of approximately one hundred days or less.

Trade and other receivables and payables

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

Government grants

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

Foreign currencies

The Group’s functional and presentation currency
is Sterling. Transactions denominated in foreign
currencies are translated into sterling at the rates ruling
at the date of the transactions.

Monetary assets and liabilities denominated in foreign
currencies at the Statement of Financial Position
date are translated at the rates of exchange ruling at
that date. Gains and losses arising on translation are
recognised in the income statement.

On consolidation, the assets and liabilities of the
Group’s overseas operations are translated into Sterling
at the exchange rate at the date of the Statement
of Financial Position. Income and expense items are
translated at the average exchange rates for the
period. Exchange differences arising are classified 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.

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.

Notes to the Group Financial Statements

(c) The Group measures the cost of equity-settled
transactions with employees by reference to the fair
value of the equity instruments at the date at which
they are granted. Estimating fair value for share-
based payment transactions requires determination
of the most appropriate inputs to the valuation model
including the expected life of the share option, volatility
and dividend yield and making assumptions about
them. The assumptions and model used for estimating
fair value for share-based payment transactions are
disclosed in note 18 to the Consolidated Financial
Statements. The Group also considers the expected
number of share options expected to vest in relation
to share options with vesting conditions linked to the
Group’s trading performance. The Directors estimate
the number of options expected to vest with reference
to previous experience.

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

(e) The Group has made provisions for onerous lease
and dilapidations on its 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.

Provisions

Provisions are made when the Group has a present
obligation as a result of past events, it is probable 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 53% of the Group's total assets. The estimates
and assumptions made to determine their carrying
value and related depreciation are significant to
the Group's financial position and performance. The
charge in respect of periodic depreciation is derived
after determining an estimate of an asset's expected
useful life and the expected residual value at the end
of its life. No residual value is expected for any of the
Group’s assets and, apart from some items of high-
value specialised equipment, plant and machinery is
estimated to have 4 years of useful life from the date of
purchase or installation.

(b) Going concern basis including its effect on the
impairment of assets. The Group monitors cash flow
as part of its day to day control procedures and
management consider cash flow projections on a
monthly basis and also prepares detailed forward
projections for future periods which also include various
scenarios. As a consequence, the Directors are satisfied
that the Group is able to maintain sufficient resources
to continue in operation for the foreseeable future.
Accordingly, they have adopted the going concern
basis in preparing the financial statements. Were this
not to be the case the carrying value of the Group’s
assets may have to be impaired.

Notes to the Group Financial Statements

2. SEGMENTAL ANALYSIS

Under IFRS8, operating segments are defined as a component of equity (a) that engages in business activities from
which it may earn revenues and incur expenses (b) whose operating results are regularly reviewed and (c) for which
discrete financial information is available. The Group management is organised in to UK and USA operation and
Corporate central functions, and this factor identifies the Group’s reportable segments.

Year ended 30 September 2021

UK operation
£ ‘000
2021 2020

US operation
£ ‘000
2021 2020

Corporate
£ ‘000
2021 2020

Eliminations
£ ‘000
2021 2020

1,922 3,192

1,674

1,564

818

436

316

329

(42)

125

Total
£ ‘000
2021 2020

3,596 4,756

104

1,134

125

103

765

(42)

(1,997) (344)

(181)

(1,161) (1,281)

277

515

(2,802) (1,291)

7,083 8,041

2,891 2,761

4,732 4,677 (3,948) (2,732)

10,758

12,747

External revenue

Interest revenue

Interest expense

Depreciation

Income tax

Provision

Reportable segment
profit / (loss)

Segment assets

Expenditure for

non-current assets

237 3,790

376

299 4,166

Segment liabilities

5,742 4,718

12,071 12,460

344

94 (14,313) (13,362)

3,844 3,910

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

2021

2020

UK
£ ‘000

1,257

2,315

Europe
£ ‘000

N America
£ ‘000

Rest of World
£ ‘000

176

122

2,149

2,315

Total
£ ‘000

3,597

4,756

The UK operation sells to the UK, Europe and some North American customers, while the US operation only sells to North
America. During 2021, of the £2,149,000 sales to North American customers, £475,000 originated from the UK operation.
All revenue is recognised at a point in time and no revenue is recognised over time.

Five external customers (2020 – two) contributed more than 10% of the Group’s continuing external sales for the year
ended 30 September 2021. The external sales for these customers were £1,145,000, £615,000, £445,000, £441,000 and
£392,000 which have been recorded within both the UK and US operation reportable segments, excluding central costs.

Notes to the Group Financial Statements

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

2021
£ ‘000

2020
£ ‘000

1,006

501

(205)

202

854

280

1,147

526

(318)

477

288

Income from grants includes $149,000 (£108,000) received from the US Small Business Association’s Paycheck Protection
Programme. This loan has been forgiven during the year and does not require repayment. The Group has also utilised
the Government’s Coronavirus Job Retention Scheme during the year, and income from grants includes £76,000
received under this scheme.

Share based payments were included within administrative overheads in the prior year. For the current year, these have
been disclosed separately on the face of the consolidated statement of comprehensive income under exceptional
items as the Directors consider the expense to be of significance to the reporting of the financial performance of the
Group. There are no changes to the Operating Loss previously reported.

4. FINANCE INCOME

Interest on bank deposits

5. FINANCE COSTS

Interest on loans

Interest on right of use assets

2021
£ ‘000

104

2020
£ ‘000

103

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:

2021

2020

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

2021
£ ‘000

2,323

241

202

2,810

2020
£ ‘000

2,462

249

2,845

Of the total share option expense of £202,000 in the year, £164,000 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% (2020: 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:

2021

£ ‘000

2020
as restated
£ ‘000

Philip Kirkham (Chief Executive)

Dr Yuri Zhuk (Technical Director)

Simon Hallam (Finance Director)

Robert Goddard (Non-Executive Chairman)

Andrew Boyce (Non-Executive Director)

Tim Rice (Non-Executive Director)

Total directors’ remuneration

Salary

Pension

Salary

Other benefits

Pension

Fees

193

118

100

528

191

117

473

The comparatives for certain directors have been restated for pension contributions and to include other benefits.

Notes to the Group Financial Statements

7. TAXATION

(a) Tax on ordinary activities:

UK Corporation Tax Charge

Adjustment in respect of prior years

Deferred Tax

Origination and reversal of timing differences

Adjustments in respect of prior periods

Effect of rate change on opening balance

Tax

2021
£ ‘000

(87)

(38)

(125)

2020
£ ‘000

(23)

(42)

(65)

(b) Factors affecting current tax charge:
The tax assessed on the profit on ordinary activities for the year is lower than (2020: lower than) the standard rate of
corporation tax in the UK of 19% (2020: 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

Other differences

Total current tax (note 7a)

2021
£ ‘000

(2,927)

(556)

836

(38)

(361)

(77)

(125)

2020
£ ‘000

(1,356)

(258)

(49)

428

(42)

(91)

(74)

(65)

The standard rate of corporation tax in the UK is currently 19% (2020: 19%). The Group has unutilised trading tax losses
in the UK of approximately £11.2m (2020: £7.3m) 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.

Changes in tax rates
On 3 March 2021, the Chancellor of the Exchequer announced an increase in the rate of Corporation tax to 25% to take
effect from 1 April 2023 for companies who profits are greater than £250,000 per annum. The impact of the change in tax
rate to current tax for the year ended 30 September 2021 is not material. The impact of the change in tax rate to deferred
tax not recognised at 30 September 2021 would be an increase in deferred tax assets not recognised of £264,000.

8. EARNINGS PER ORDINARY SHARE

(Loss) on ordinary activities after tax

Basic earnings per ordinary share:

2021
£ ‘000

(2,802)

2020
£ ‘000

(1,291)

Weighted average number of ordinary shares in issue

Earnings per share

53,672,622

(5.2)p

51,911,022

(2.5)p

As net losses were recorded in 2021 and 2020, the potentially dilutive share options are anti-dilutive for the purposes of
the loss per share calculation and their effect is therefore not considered.

Notes to the Group Financial Statements

9. GOODWILL

Cost at 1 October 2020 and 30 September 2021

Net book value at 1 October 2020 and 30 September 2021

£ ‘000

Goodwill relates to the acquisition of the net liabilities of Isle Hardide Limited by Hardide Coatings Limited which
occurred in October 2000 and which were valued at £99,095, for which no consideration was paid. The goodwill had
previously been amortised over 20 years under UK GAAP until conversion to IFRS on 1 October 2006. Total amortisation
up to that date amounted to £30,000 giving a net book value of £69,000.

The Group tests whether goodwill has suffered any impairment on an annual basis. The Directors consider there
to be one-cash generating unit for the purposes of assessing for impairment of goodwill. For the 2021 and 2020
reporting periods, the recoverable amount of the cash-generating unit (CGU) was determined based on value-in-
use calculations which require the use of assumptions. The calculations use cash flow projections based on financial
budgets approved by management covering the following financial year, together with a 3 year strategic plan. The
Directors consider the recoverable amount of the cash-generating unit exceeds the carrying value of goodwill under
this period of financial budgets and strategic plans and, therefore, have not extrapolated the cash flow projections over
a longer period.

The Directors estimate discount rates using pre-tax rates that reflect current market assessments of the time value of
money and the risks specific to the CGU. The Directors have a applied a discount rate of 4%.

The key assumptions used by management in setting the financial budget and strategic plan include forecast sales
growth rates, expected changes to selling prices, material costs and operating profits. Forecast sales growth rates are
based on past experience and expected outcomes of current development work.

The Group has conducted an analysis of the sensitivity of the impairment test to changes in the key assumptions used
to determine the recoverable amount of goodwill. The Directors believe that any reasonably possible change in the key
assumptions on which the recoverable amount of the CGU is based would not cause the aggregate carrying amount
to exceed the aggregate recoverable amount of the CGU.

10. INTANGIBLE ASSETS

Cost at 1 October

Additions

Disposals

Cost at 30 September

Amortisation b/fwd

Disposals

Amortisation in the year

Amortisation c/fwd

Net book value at 1 October

Net book value at 30 September

2021
£ ‘000

2020
£ ‘000

(2)

(1)

Notes to the Group Financial Statements

11. PROPERTY, PLANT AND EQUIPMENT

Leasehold
buildings
£ ‘000

Plant, vehicles
and fixtures
£ ‘000

Computer
equipment
£ ‘000

Cost at 1 October 2019

Additions

Disposals

Exchange differences

Cost at 30 September 2020

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

Cost at 1 October 2020

Additions

Disposals

Exchange differences

Cost at 30 September 2021

Depreciation at 1 October 2020

Provided in the year

Disposals

Exchange differences

Depreciation at 30 September 2021

Net book value at 1 October 2020

Net book value at 30 September 2021

639

1,121

(11)

1,749

344

(5)

381

295

1,368

1,749

(4)

(11)

1,782

381

159

(4)

(5)

531

1,368

1,251

5,735

2,937

(6)

(118)

8,548

3,304

406

(5)

(48)

3,657

2,431

4,891

8,548

256

(861)

(128)

7,815

3,657

649

(848)

(38)

3,420

4,891

4,395

104

(4)

(1)

174

(4)

(1)

174

(17)

(2)

164

(13)

(1)

110

Total
£ ‘000

6,478

4,133

(10)

(130)

10,471

3,733

464

(9)

(54)

4,134

2,745

6,337

10,471

313

(882)

(141)

9,761

4,134

836

(865)

(44)

4,061

6,337

5,700

Notes to the Group Financial Statements

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

2,320

261

Net book value at 30 September 2020

2,059

Cost at 1 October 2020

Additions

Disposals

Adjustments

Exchange differences

2,320

(13)

Cost at 30 September 2021

2,344

Depreciation at 1 October 2020

Provided in the year

Disposals

Adjustments

Exchange differences

Depreciation at 30 September 2021

Net book value at 1 October 2020

Net book value at 30 September 2021

261

244

(2)

521

2,059

1,823

Equipment
£ ‘000

Vehicles
£ ‘000

(9)

Total
£ ‘000

2,368

2,418

288

2,130

2,418

(9)

(13)

2,456

288

280

(9)

(2)

575

2,130

1,881

Notes to the Group Financial Statements

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

2021
£ ‘000

2020
£ ‘000

288

177

504

572

583

221

153

442

688

839

1,543

3,072

406

137

565

474

486

209

123

395

2,000

626

2,715

4,161

There is no general provision for bad debts. During the year, one specific trade receivable amounting to £1,000 was
classified as a bad debt (2020: Nil). 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 other than the one referred to
above required impairment. The ageing of trade receivables is as follows:

Current

1 month

2 months

3 months

More than 3 months

Total trade receivables

2021
£ ‘000

263

284

572

2020
£ ‘000

294

125

474

A total of £309,000 (2020: £180,000) trade receivables are over 30 days old and therefore overdue.

Notes to the Group Financial Statements

2021
£ ‘000

460

180

702

208

201

1,111

2020
£ ‘000

661

183

906

193

1,190

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

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.

In January 2021, the Group 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.

In March 2021, the Group also entered into a £250,000 Coronavirus Business Interruption Loan Scheme (CBILS) backed loan
facility with Maven Capital Partners LLP. The term is over 48 months at an interest rate of 8%, with the first loan repayment
instalment commencing in March 2022.

Notes to the Group Financial Statements

15. PROVISIONS

Grants
£ ‘000

Onerous lease
£ ‘000

Dilapidations
£ ‘000

Provision at 1 October 2019

Provisions utilised

Provisions charged

Effect of movements in exchange rates

Provision at 30 September 2020

Provision at 1 October 2020

Provisions utilised

Provisions charged

Effect of movements in exchange rates

Provision at 30 September 2021

260

(95)

(42)

(7)

116

(108)

(8)

(47)

Maturity analysis:

Within 1 year

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years

5+ years

100

(50)

2021
£ ‘000

Total
£ ‘000

361

(95)

(7)

267

(205)

(8)

2020
£ ‘000

161

267

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
considered that they were unlikely to be achieved by the performance dates currently in place, and repaid $116,000
in respect of one of the grants in February 2020. The Group repaid the other grant, worth $150,000, in two equal
instalments in March 2021 and June 2021.

The Directors reviewed the estimate of remaining dilapidation costs for the Wedgwood Road site, and increased the
provision by a further £30,000. Under IFRS 16, this has been capitalised in the right of use asset value.

Notes to the Group Financial Statements

2021
£ ‘000

738

1,911

2021
£ ‘000

2,112

201

188

184

167

133

1,239

2020
£ ‘000

407

2,046

2020
£ ‘000

2,239

193

196

180

177

159

1334

16. NON-CURRENT OTHER FINANCIAL LIABILITIES

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

17. SHARE CAPITAL

Allotted ordinary shares of 4p each

Allotted deferred shares of 0.9p each

2021

2020

Number Value
000 £ ‘000

Number
000

Value
£ ‘000

55,876

2,235

53,219

189,642

1,707

189,642

2,129

1,707

During the year, the Company raised £795,000 before expenses (£764,000 net of commission, legal fees and expenses)
by way of placing 2,656,959 ordinary 4p shares at a price of 30.9p per share. No employee share options were exercised
during the year (2020: 104,740).

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.

Notes to the Group Financial Statements

18. SHARE-BASED PAYMENT

Outstanding at 30 September 2020

Exercisable at 30 September 2020

Granted during year

Exercised during year

Lapsed during year

Outstanding at 30 September 2021

Exercisable at 30 September 2021

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

Weighted average
exercise price

3,030,364

1,057,000

1,820,108

3,650

4,846,822

940,850

50.9p

40.2p

31.0p

30.0p

43.6p

37.7p

Number

Weighted average
exercise price

387,500

1,983,200

689,516

600,000

41.4p

42.9p

46.3p

30.0p

Number

Exercise price

150,000

741,600

338,508

300,000

31.0p

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 76%, a risk-free interest rate of 0.56%, and an
expected life of 8.5 years.

All options have a maximum term of 10 years from date of grant and are settled with equity upon exercise. No options
expired during the year. Vesting criteria are a mix of time-based and performance-based. The performance criteria are
the market capitalisation or price per share of the Company, or Group profitability, or new business. At 30 September
2021 the weighted average remaining contractual life of all outstanding options was 7 years and 3 months (2020: 8
years and 3 months).

The total charge to the income statement for share options during the year was £202,000 (2020: £86,000).

Notes to the Group Financial Statements

19. POST BALANCE SHEET EVENTS

On 19 January 2022, Hardide Coatings Inc entered into a $438,000 (£325,000) asset finance agreement with The
American National Bank and Trust Company, Hardide Coatings Inc’s US bankers. The term is over 60 months at an
interest rate of 4%, with the first loan repayment instalment commencing in February 2022.

20. RELATED PARTY TRANSACTIONS

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

21. CAPITAL COMMITMENTS

At the Statement of Financial Position date Hardide Coatings Inc had a capital commitment of $6,000 (£4,000) for the
purchase of equipment (2020: £45,000). Hardide Coatings Ltd had capital commitments of £35,000 for the purchase of
equipment (2020: £124,000) and £Nil for leasehold improvements (2020: £11,000).

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 2021 the Group had trade receivables and
other receivables of £583,000 (2020: £486,000) and cash deposits of £1,543,000 (2020: £2,715,000).

The Group does not consider the effect of expected credit losses to be material.

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 2021 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 £23,000 (2020: £28,000).

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 2021, the Group had no floating rate borrowings, and all its cash deposits were in floating rate
accounts.

Parent Company Statement of Financial Position

PARENT COMPANY STATEMENT OF
FINANCIAL POSITION

For Hardide plc, company registered number 05344714 at 30 September 2021

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

Financial liabilities

Total current liabilities

Net current assets

Non-current liabilities

Financial liabilities

Total non-current liabilities

Total liabilities

Net assets

Equity

Share capital

Share premium

Retained earnings

Share-based payments reserve

Total equity

Note

2021
£ ‘000

2020
£ ‘000

1,267

11,632

(11,632)

1,267

2,883

582

3,465

4,732

141

1,235

11,868

(11,868)

1,235

1,645

1,797

3,442

4,677

3,324

3,348

203

344

4,388

4,583

3,942

18,854

(18,970)

562

4,388

3,836

18,196

(17,809)

360

4,583

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 £1,161,000 (2020: loss of £1,281,000) after accounting
for a reduction in the provision against the intercompany loan of £236,000 and an exchange rate loss on intercompany
loan of £514,000.

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

The financial statements were approved and authorised for issue by the Board on 14 February 2022.

Robert Goddard
Director

Statement of Cash Flows / Statement of Changes in Equity

STATEMENT OF CASH FLOWS

For the year ended 30 September 2021

Cash flows from operating activities

Operating (loss)

Share option charge

Movement in investment in subsidiaries

(Increase) / decrease in receivables

(Decrease) in payables

Cash used in operations

Finance income

Tax received

Net cash used in operating activities

Cash flows from investing activities

Net loan to subsidiaries

Net cash used in investing activities

Cash flows from financing activities

Net proceeds from issue of ordinary share capital

New loans raised

Net cash used in financing activities

2021
£ ‘000

2020
£ ‘000

(1,011)

202

(32)

(22)

(863)

(765)

(1,464)

764

250

1,014

(848)

(17)

(91)

(869)

(783)

(3,322)

2,372

Net increase in cash and cash equivalents

(1,215)

(1,733)

Cash and cash equivalents at the beginning of the year

Cash and cash equivalents at the end of the year

1,797

582

3,530

1,797

STATEMENT OF CHANGES IN EQUITY

For the year ended 30 September 2021

Share Share-based
Payments
£ ‘000

Premium
£ ‘000

At 1 October 2019

Issue of new shares

Share options

Loss for the year

Share
Capital
£ ‘000

3,673

163

15,987

2,209

At 30 September 2020

3,836

18,196

At 1 October 2020

Issue of new shares

Share options

Loss for the year

3,836

106

18,196

658

At 30 September 2021

3,942

18,854

Retained
Earnings
£ ‘000

(16,528)

(1,281)

(17,809)

Total
Equity
£ ‘000

3,406

2,372

(1,281)

4,583

(17,809)

4,583

(1,161)

(18,970)

764

202

(1,161)

4,388

274

360

202

562

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:

2021
Number

2020
Number

Management and administration

Sales and marketing

Technical

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

Wages and salaries

Social security costs

Share option expense

Employer pension costs

2021
£ ‘000

701

170

969

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

3. INVESTMENTS

Investments in subsidiaries

2021
£ ‘000

1,267

2020
£ ‘000

743

912

2020
£ ‘000

1,235

At 30 September 2021 the company held 100% of the share capital of the following subsidiaries:

Hardide Coatings Limited

Hardide Coatings, Inc

Hardide Aerospace Coatings Limited

Ordinary

100%

USA

Surface engineering

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 £11,632,000 (2020: £11,868,000) 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 £236,000 (2020: £18,000 reduction) 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

2021
£ ‘000

202

2,681

2,883

2020
£ ‘000

151

1,494

1,645

The amounts owed by group undertakings are unsecured and interest free, and are repayable on demand.

6. CURRENT LIABILITIES

Trade payables

Social security and other taxes

Accruals and deferred income

Loans

Total current liabilities

7. NON-CURRENT OTHER FINANCIAL LIABILITIES

Loans

Notes to the Parent Company Accounts

2021
£ ‘000

2020
£ ‘000

141

2021
£ ‘000

203

2020
£ ‘000

On 17 March 2021, the company entered into a £250,000 Coronavirus Business Interruption Loan Scheme (CBILS) backed
loan facility with Maven Capital Partners LLP. The term is over 48 months at an interest rate of 8%, with the first loan
repayment instalment commencing in March 2022.

8. SHARE CAPITAL

Allotted ordinary shares of 4p each

Allotted deferred shares of 0.9p each

2021

2020

Number Value
000 £ ‘000

Number
000

Value
£ ‘000

55,876

2,235

53,219

189,642

1,707

189,642

2,129

1,707

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

9. CAPITAL COMMITMENTS

The company has no capital commitments at 30 September 2021 or 30 September 2020.

10. CONTINGENT LIABILITIES

There were no contingent liabilities at 30 September 2021 or 30 September 2020.

11. 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

2021

2020

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

Balance outstanding at 30 September

177

(57)

192

875

2,681

236

11,632

183

(60)

319

2,372

1,494

515

11,868

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.

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.
140 Fountain Parkway North, Suite 410
St. Petersburg,
FL 33716 USA

REGISTRAR

PATENT AGENT

REGISTERED OFFICE
AND PRINCIPAL PLACE OF
BUSINESS

Share Registrars Limited
3 The Millennium Centre
Crosby Way
Farnham
Surrey
GU9 7XX

Harrison Goddard Foote
Belgrave Hall
Belgrave Street
Leeds
LS2 8DD

Hardide plc
9 Longlands Road
Bicester
Oxfordshire
OX26 5AH

HARDIDE PLC ANNUAL REPORT 2021

Hardide® is a family of nanostructured and

Hardide surface engineering technology

patented, low temperature CVD (chemical

transforms the way that parts perform

vapour deposition) coatings which

under severe service conditions. Previously,

provide exceptional wear and corrosion

levels of friction, abrasion and aggressive

resistance and uniquely combine extreme

chemical attack have led to part failure,

toughness with ductility. Our coatings are

downtime and extreme cost. Our coatings

‘value-adding’ to components and lower

are enabling customers in high wear/

operational costs by reducing downtime,

high value industries including energy,

increasing productivity and improving

aerospace, flow control, power generation

performance. They can be precision

and precision engineering to optimise part

applied to external and internal surfaces

life, improve product performance and

including complex geometries, enabling

make significant operating cost savings.

a level of engineering design flexibility not

The Group has manufacturing facilities in

possible with alternative technologies.

Oxfordshire, UK and Virginia, USA.

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ANNUAL
REPORT
2021