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Interim results for the 6 months to 31 March 2019

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Comparison with H1 FY18:


Financial overview H1 FY19

Record sales for any H1: £2.35m – increase of 9%

Gross profit: £1.05m – down by £0.1m

Gross margin: 45% - down from 49%

EBITDA: £0.44m loss – increased loss of £0.30m

Successful fundraise: £3.6m (gross)

Cash at bank: £5.35m – increase of £2.12m

Financial commentary H1 FY19

• Product mix in H1 affected by reduced level of orders from major O&G customer due to a change in component details and move to new Tier One machinist

- Consequence was a lower than usual gross profit and margin %

- Orders now returning to usual levels

• Greater proportion of project based business = lumpy demand and difficulty in forecasting over short term

Comparison of sales with H1 FY18:

• Oil & Gas – no change: reduction above offset by increases from others

• Flow Control - increase of 52%

• Sales to North America - increase of 32%

• Over half of H1 revenue from customers new within last 3 years


Financial commentary H1 FY19

Compared with H1 2018:

• Overheads increased by £0.19m due to:

• Investment in new US-based Business Development Engineer

• Additional sales & marketing efforts

• Operating costs associated with new US reactor

• Annual staff pay award

• Forex

• Costs associated with the new share admissions

• Resultant EBITDA loss of £0.43m



Financial trends

Product mix

effect


• North American sales up by 32%

Sales revenue increased 9%

• Third reactor and new pre-treatment line installed in Martinsville

Additional US capacity

• Detailed planning underway for site move

• First new coating reactor ordered

• Large coating reactor and pre-treatment line being designed

New UK premises

• Extends range of metals able to be coated including O&G and aerospace components

• Work part funded by Innovate UK

New low temperature coating developed

• Applying the new ultra-low temperature coating to aerospace components

• Development of new grinding & superfinishing methods

Two new NATEP grant projects

Operational overview


Airbus: Encouraging progress. Increased number of components in testing

Component approvals due shortly

Leonardo Helicopters:

Leonardo in process of approving Hardide for production parts

Final testing of transmission components this year

Other Aerospace:

Significant progress with Triumph Aerospace on two projects

Components in flight testing with a major MRO organisation

Power Generation:

EDF planning to install trial blades into a power station

Joint presentation with EDF on the new technology

Working with turbine manufacturers

Business development

Oil & Gas: New major customer applications now in production

New customers for coated TSP diamonds –demand increasing

Flow Control: Significant increase in new components from the major pump customer

Precision Engineering:

Regular demand continuing for x-ray baggage screening machine parts

North America:

Additional business development manager

Now 68% of Group turnover

Reach & Hard Chrome:

Request to extend use of hard chrome denied by European parliament

Now also seen as a replacement for HVOF coatings


Outlook positive in all sectors- oil & gas, flow control and precision engineering demand strong

Recent developments in new oil & gas applications starting to deliver high volumes

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

Planning well underway for move to new UK site

Subject to our large O&G customer’s continuing level of demand, full year revenue expected to be at lower end of market expectations with ebitdaexpected to be broadly break-even for H2 (before costs associated with the move of facilities)

Outlook

Financials


£m 2015/16 2016/17 2017/18 2018/19

H2 H1 H2 H1 H2 H1

Sales 1.19 1.51 1.73 2.16 2.45 2.35

Variable Gross

Margin %69% 73% 77% 75% 71% 68%

Fixed costs of sales 0.39 0.42 0.43 0.46 0.51 0.55

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

Overheads 1.02 1.11 1.22 1.29 1.42 1.48

EBITDA (0.59) (0.43) (0.31) (0.14) (0.16) (0.44)

Consolidated income statement


Balance sheet

£k 2015/16 2016/17 2017/18 2018/19

H2 H1 H2 H1 H2 H1

Assets 2,212 2,007 1,802 1,868 2,392 2,413

Cash 1,967 1,563 1,212 3,233 3,302 5,348

Net working capital 218 227 294 342 (301) 591

Liabilities &

provisions*(20) (12) (17) (65) (314) (433)

Capital Employed 4,377 3,785 3,291 5,378 5,079 7,919

Equity 13,547 13,547 13,548 16,018 16,081 19,532

Losses (8,964) (9,648) (10,060) (10,377) (10,925) (11,583)

Other reserves (206) (114) (197) (263) (77) (30)

Shareholders’ funds 4,377 3,785 3,291 5,378 5,079 7,919

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


£k 2015/16 2016/17 2017/18 2018/19

H2 H1 H2 H1 H2 H1

Net Operating

Cash(546) (295) (291) (138) 530 (1,203)

Net Investing

Cash(55) (100) (52) (360) (527) (321)

Share Issues 1,571 - - 2,470 63 3,451

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

Loan

Changes- - - 51 3 119

Net Financing

Cash1,562 (9) (8) 2,519 66 3,570

Net Cash At

Start1,006 1,967 1,563 1,212 3,233 3,302

Net Cash At

End1,967 1,563 1,212 3,233 3,302 5,348

Cash flow

Appendices

History of Hardide

2017Airbus

approval

2016opened facility in

US

2005floated on

AIM

2003

relocated to Bicester,

Oxon

2000

company formed


Leading global innovator and developer of advanced Tungsten Carbide based metal coatings

Strong IP portfolio: 5 patents registered since incorporation

New patent pending for coating of turbine blades

We apply patented, advanced surface technology nano-structured coatings to industrial components, using a gas-phase technology called Chemical Vapour Deposition (CVD). This significantly increases the working life of the components


Key facts of FY18

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


UK – Head office and

10,000 sq.ft coating facility

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

Hardide Group Facilities

*Shortly moving to new,

larger premises

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

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

© 2019 All content is confidential and remains the property of Hardide plc

Hardide – a family of coatings

21

Low temperature versions Hardide-LT and Hardide-LA also now available

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 leading oil & gas service providers –downhole, well stimulation and subsea applications

Flow Control

➢Severe service pumps & valves for demanding environments

Precision Engineering

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

➢Steam turbine blade applications

Aerospace

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

Accreditations

Hardide is accredited to various international standards:-

➢Aerospace quality management system: AS9100 RevD

➢Nadcap (the global aerospace process approval standard)

➢Quality management system: ISO 9001:2015

➢Environmental standard: ISO 14001:2015

© 2019 All content is confidential and remains the property of Hardide plc 24

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