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Preliminary results for the year to 30 September 2018

Hardide plc

2© 2018 All content is confidential and remains the property of Hardide plc

Developed and commercialised patented CVD coating

➢With a unique combination of properties

The coating does what others can’t:

➢Uniformly coats complex shapes, both inside and outside

Provides B2B coating service

➢From sites in Bicester, UK and Virginia, USA;

➢Both facilities accredited to AS9100/ISO9001

Customers and developments:

➢All major oil service companies, GE, Airbus, BAE Systems,

Leonardo Helicopters, EDF Energy;

Listed on LSE AIM

Currently investing for growth

Comparison with FY17:


Financial overview FY18

Record sales: £4.61m - 47% CAGR over 3 years

Gross profit: £2.41m – 87% CAGR over 3 years

Gross margin: 52% - from 49%

EBITDA: £0.30m loss - reduced from £0.74m loss

Oversubscribed fundraise: £2.54m

Cash at bank: £3.30m (at 30/09/18)

Overheads: 59% of sales down from 72%


0

0.5

1

1.5

2

2.5

3

H1 2016 H2 2016 H1 2017 H2 2017 H1 2018 H2 2018

£m

Sales revenue

0

0.2

0.4

0.6

0.8

1

1.2

1.4

H1 2016 H2 2016 H1 2017 H2 2017 H1 2018 H2 2018

£m

Gross Profit

0%

10%

20%

30%

40%

50%

60%

H1 2016 H2 2016 H1 2017 H2 2017 H1 2018 H2 2018

Gross Margin

Financial trends

-1.4

-1.2

-1

-0.8

-0.6

-0.4

-0.2

0

2016 2017 2018

£m

EBITDA


UK – Head office and primary 16,000 sq ft manufacturing facility based in Oxfordshire

USA – 25,000 sq.ft coating facility in Martinsville, Virginia, opened in 2016

Russia – Research lab in Moscow. Scientists with decades in CVD research. Working on new Hardide formulations and applications

Hardide group facilities


Key facts

Patented coating technology

Turnover c. £4.6m

Group headcount c. 45

Head office and main facility in Bicester, Oxfordshire

US coatings facility in Martinsville, Virginia opened 2016

Current major markets Oil & Gas and Flow Control: downhole components, pumps and valves

Developing markets: aerospace, power generation, precision engineering

Visibility of near term EBITDA break even

3 year sales growth: 47% CAGR

Strong balance sheet

Approved supplier to BAE and Airbus

High margins:• Variable margin: >70%• Gross margin: > 50%• High operational gearing

Leonardo Helicopters full approval in progress

Coating is crystallised atom-by-atom from gases by chemical vapour deposition (CVD)

Hardide does what other coatings can’t: uniformly coats complex shapes, both internal and external surfaces, including non-line-of-sight areas

250x greater wear resistance than steel

Protects against corrosion – acid resistant

Coated parts typically last many times longer

Hardide enables high-value manufacturers to make globally competitive products, differentiated in terms of quality, performance and life-cycle costs


Patented coating technology

Nano-structured tungsten carbide, metallurgical coatings that significantly extends the life of criticalparts and tools. A CVD (Chemical Vapour Deposition) process creates an extremely hard, tough and thinlayer with a number of advantages over competitor processes.


Technology

Superior wear & erosion resistance

Outperforms hard chrome by factor of 12 and cemented tungsten carbide by factor of 3

Ease of Finishing

Only polishing required compared to expensive grinding with other technologies - especially with

complex shapes

Chemical Resistance

Virtually pore-free structure provides very high protection against a range of corrosive and aggressive chemicals

Tailored Hardness

Gas phase of process allows precise control over hardness. Micro hardness of up to 4000HV can be achieved

Internal Surfaces and Complex Shapes

Gas-phase deposition process allows uniform coating to form on internal

surfaces and complex designs. This is not possible for HVOF, Plasma Spray, D-Gun

or PVD Coating technologies

Toughness and Flexibility

Follows contours of substrate and has high flexibility – substantially reducing the

risk of cracking under deformation

Coating Thinness

CVD process requires no binder, creating a less bulky structure than alternative

technologies

Type Hardness Toughness Thickness Applications

Hardide-H

“Ultra-Hard”3000 – 3500 Hv Satisfactory 5…10 μm

Self-sharpening blades

Hardide-T

“Tough”1100 – 1600 Hv Excellent

Typically 50 μm

Oil tools, pumps, valves, actuators

Hardide-A

“Aerospace”800 – 1200 Hv Excellent 50-100 μm

Hard chrome replacement

Hardide-W 400 Hv Excellent Up to 300 μm X-ray Anodes

Coating hardness/toughness/thickness can be tailored to a specific application requirements

© 2018 All content is confidential and remains the property of Hardide plc

Hardide – a family of coatings

9

Intellectual property


Five international families of patents, including:

➢Two patents protect the compositions, structure and depositionmethods of different types of Hardide coatings for metal parts.Key claims specify the coatings chemical composition, which canbe used as a “fingerprint” of Hardide technology

➢Two patents on coating for diamonds

➢Self-sharpening blades with hard coating

Hardide trademark registered in the EU and the USA

New applications and coating improvements are reviewed for possible patentability

New patent application pending for turbine blades


Key markets

Oil & Gas

➢Used by all the leading oil & gas service providers –downhole, well stimulation and subsea applications

Flow Control

➢Severe service pumps & valves for demanding environments

PrecisionEngineering

➢Power generation, plastics extrusion, baggage X-ray machines, silicon wafer production

Aerospace

➢BAE and Airbus approved, Leonardo approval in progress, multiple applications with other global aero players


• Technical work completed

Airbus

• Final stages before approval of parts

Leonardo helicopters

• Work ongoing with Triumph Aerospace and others

US aerospace

• Commissioned during Nov 2018

New reactor in US

• Accredited to ISO 9001 and aerospace AS9100D

Martinsville facility

Two NATEP grants

New patent application pending

• Oil & gas sector sales up 61%

• More diversified customer base

• Two new large supply contracts producing revenue

Sales revenue increased 42%

• Now 61% of group revenue

Sales to North America up 84%

Gross margin increased by 3%

Aerospace close to first orders

Additional us-based business development manager

Operational overview


Airbus:➢Positive progress. Multiple components at final stage before

production

Leonardo Helicopters:➢Positive progress. Final stages before part approval on

transmission system

Other Aerospace:➢New interest from US aerospace companies - trials with

Triumph Aerospace and others

Business Model Change➢Two contracts where we are now responsible for full

component manufacture as well as coating

Oil & Gas:➢Two new major supply contracts in place

➢Three new major customer applications

➢New coated diamond applications

Flow Control:➢Additional high volume components from the major

customer

Precision Engineering:➢Continuing demand for x-ray baggage screening machine

parts

North America:➢Additional business development manager appointed

➢Now 61% of Group turnover

Business development


Outlook positive in all sectors- oil & gas demand especially strong, but carefully watching global trends

Recent developments in oil & gas applications projected to deliver high demand in coming years

Confident of aerospace revenues commencing shortly – especially from Airbus and Leonardo Helicopters

Third reactor installed in Martinsville during November 2018. New, larger pre-treatment line also currently being installed

UK site currently under review due to capacity and space restrictions

Outlook

Financials


£m 2015/16 2016/17 2017/18

H1 H2 H1 H2 H1 H2

Sales 0.95 1.19 1.51 1.73 2.16 2.45

Variable Gross Margin %

65% 69% 73% 77% 75% 71%

Fixed costs of sales 0.36 0.39 0.42 0.43 0.46 0.51

Gross Profit % 27% 36% 45% 52% 53% 51%

Overheads 0.97 1.02 1.11 1.22 1.29 1.42

EBITDA (0.72) (0.59) (0.43) (0.31) (0.14) (0.16)

Consolidated income statement


Balance sheet

£k 2015/16 2016/17 2017/18

H1 H2 H1 H2 H1 H2

Assets 2,156 2,212 2,007 1,802 1,868 2,392

Cash 1,006 1,967 1,563 1,212 3,233 3,302

Net working capital 198 218 227 294 342 (301)

Liabilities & provisions*

(29) (20) (12) (17) (65) (314)

Capital Employed 3,331 4,377 3,785 3,291 5,378 5,079

Equity 11,976 13,547 13,547 13,548 16,018 16,081

Losses (8,247) (8,964) (9,648) (10,060) (10,377) (10,925)

Other reserves (398) (206) (114) (197) (263) (77)

Shareholders’ funds 3,331 4,377 3,785 3,291 5,378 5,079

*Provision created of £246k for potential partial-repayment of US grants


£k 2015/16 2016/17 2017/18

H1 H2 H1 H2 H1 H2

Net Operating Cash

(807) (546) (295) (291) (138) 530

Net Investing Cash

(506) (55) (100) (52) (360) (527)

Share Issues - 1,571 - - 2,470 63

Finance Lease (8) (9) (9) (8) (2) -

Loan Changes - - - - 51 3

Net Financing Cash

(8) 1,562 (9) (8) 2,519 66

Net Cash At Start

2,327 1,006 1,967 1,563 1,212 3,233

Net Cash At End 1,006 1,967 1,563 1,212 3,233 3,302

Cash flow


Sales grew strongly over the past three years (47% per year) but gross profit grew nearly twice as fast (87% per year) and fixed costs (production overheads + admin costs) grew at only 16% per year.

Year on Year comparison

£m 2015/16 2016/17 2017/18 CAGR

Sales 2.14 3.24 4.61 47%

Variable Gross Margin % 67% 75% 73%

Fixed costs of sales 0.75 0.85 0.97 14%

Gross Profit 0.69 1.58 2.41 87%

Gross Profit % 32% 49% 52%

Overheads 1.99 2.33 2.71 17%

EBITDA (1.31) (0.74) (0.30)

'Fixed' costs (2.74) (3.18) (3.68) 16%

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