hardide plc 20 annual report 08 · 2010-06-23 · limited, delivered fy 2008 revenue of £1.97...
TRANSCRIPT
0820Annual Report
Hardide plc
Hardide™ is a family of low temperature CVD
(chemical vapour deposition) tungsten carbide-based
coatings which possess a unique combination of
abrasion, erosion and chemical resistant properties.
The coating is applied in a furnace where components are heated to approximately 500oC
depending on the substrate and application. A controlled mixture of gases is then pumped into
the furnace where a chemical reaction takes place; the gases crystallise on the surface of the
components to produce a smooth, homogeneous layer of binder-free tungsten carbide coating.
Hardide surface engineering technology is revolutionising the way parts perform under the
harshest of conditions. Previously, levels of friction, abrasion and aggressive chemical attack
have led to part failure, downtime and sometimes incalculable cost. Hardide’s unique coatings
are enabling customers in high wear/high value industries such as oil and gas exploration
and production, aerospace and valves to optimise part life, achieve market leading product
performance and make significant cost savings.
Financial Highlightsn Groupturnoverdecreased14%to£2.12million(FY2007:£2.47million)
n Decreasedlossbeforetaxof£1.74million(FY2007:loss£1.86million)
n Decreasedlosspershareof1.1p(FY2007:loss1.2p)
n Successfulraisingof£1.5million(gross)newfunds
n MaidenprofitachievedforUKoperatingcompany,HardideCoatingsLimited,inH12008.FullyearlossforHardideCoatingsLimitedduetocustomerde-stockingissueatthestartofH22008
n Groupoverheadsreducedby£600,000(21%)onanannualisedbasis
Operational Highlightsn AppointmentofDrGrahamHineasCEO
n Commencementofthree-yeartestingprogrammewithAirbus
n GlobalgassupplyagreementfortungstenhexafluoridesuccessfullynegotiatedinH12008
n FormationofanApplicationsDevelopmentGrouptostrategicallyevaluate,prioritise,manageandmonitorthedevelopmentofnewapplicationsforboththeUKandUSdivisions
n Newmarketssuccessfullyidentified,includingtheindustrialdiamondmarket
n HoustonfacilityachievesISO9001accreditation
Contents4 Chairman’sStatement
6 ChiefExecutiveOfficer’sReview
10 FinancialReview
12 BoardofDirectors
14 ReportoftheDirectors
18 ReportoftheIndependentAuditor
20 ConsolidatedIncomeStatement
21 ConsolidatedBalanceSheet
22 ConsolidatedCashFlowStatement
23 ConsolidatedStatementofRecognisedIncomeandExpense
24 NotestotheGroupFinancialStatements
41 ParentCompanyBalanceSheet
42 NotestotheParentCompanyAccounts
46 DirectorsandAdvisers
Chairman’s Statement
AnincreaseinGroupturnoverandgrossprofit,andreductioninoperatingloss,wasreportedforH12008togetherwithamaidenpre-taxprofitfortheUKbusiness,HardideCoatingsLimited.However,thesuddencustomerde-stockingissue,whichbecameapparentatthestartofH22008,combinedwithslowgrowthintheUSbusiness,hasdepressedthefullyearresults.Salesrevenuefortheyearended30September2008was£2.12million,down14%from£2.47millionin2007.TheGroupresultfortheyearwasalossbeforetaxof£1.74million,a6%reductionfromthepre-taxlossof£1.86millionin2007.Sharpfocusoncostreductionhashelpedcontrolthedeclineingrossmargincausedbylowervolumes,from52%in2007to47%thisyear.
On1April2008,theboardtookthedecisiontosuspendtradingintheGroup’sshares.Thesharesuspensioncontinueduntil3June2008duringwhichtimeGroupChiefExecutiveOfficer,JimMurray-Smith,resignedandnewfundsof£1.5million(gross)wereraised.Thenewmoneycoveredoperatinglossesandhasfacilitatedthedevelopmentofnewapplicationsintendedtogenerateadditionalnearandmid-termsalesrevenue.
On2June2008,theboardwaspleasedtoappointDrGrahamHineasChiefExecutiveOfficer.Grahambringsapowerfulcombinationofgeneralmanagement,technicalknowledgeandcommercialexperience.HebeganhiscareeratPhilipsPLCandhassubsequentlyheldanumberofdirector-levelbusinessdevelopmentandgeneralmanagementroles.Hehasmorethantwelveyears’experienceinChairmanandCEOroleswherehesignificantlygrewshareholdervalueintechnology-basedcompaniesintheadvancedmaterialsandsensorindustries.
ArevisedstrategicplanwasformulatedinApril2008.ThiswassubsequentlydevelopedfurtherbyGrahamandthemanagementteam.Intheshortterm,thenewstrategyisfocusedonincreasingcashgenerationintheUKandcommercialisingthe
significantcustomerinterestintheUS.Atthesametime,discretionarycapitalandrevenueexpenditureisbeingminimiseduntilfirmerongoingsalesgrowthisestablished.Forthemediumandlongerterm,carefullytargetedresourceshavebeencommittedtodevelopmentsdesignedtoprovidegrowthinanumberofexcitingnewareas.
H22008sawarigorouscostreductionprogrammeandamarkedtighteningoffinancialcontrols.Thishasresultedinthereductionof£600,000(21%)oftotalGroupoverheads,onanannualisedbasis.
Hardidehasenteredthenewfinancialyearinastrongerpositionandwithaclearstrategyfordiversification,astreamlinedmanagementstructure,firmcontrolofcostsandenhancedinternalreporting.Theboardandmanagementnowhaveaclearviewofthebusinessandhavesetthestrategyandimplementedthechangesthatareneededtogrowrevenuesanddelivershareholdervalue.
TheGroupisalerttotheeffectthattheglobaleconomicdownturnmayhaveonourbusiness.However,todatewehaveobservednoadverseindicationsforHardide.Wewillremainvigilantandtakeappropriateactionintheeventthatwebelievesalesmayfallbelowourcurrentforecast.
Iwouldliketothankallstaffandmembersoftheboardfortheirsupportandcontributionoverthelastyear.
Robert GoddardChairman
08December2008
2008 has been a challenging year for Hardide plc. However, the fundamental business performance was sound and the year ended in line with revised market expectations.
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Hardide has proven to give us an
exciting advantage in heavily abrasive
valve applications. The superior
performance of our Hardide-coated
ball valves will unlock new markets for
us, and we will be testing the coating
as an enabling technology for brand
new valve designs.
A Hardide US customer:oneoftheworld’slargestmanufacturersofpumps,valves,sealsandcomponents
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Chief Executive Officer’s Review
Thetechnologyisrobustandhasexcitingpotentialforfurtherdevelopment,themanagementandstaffhaveproventhattheyaretalentedandcommitted,andourcustomerscontinuetobeextremelysupportive.Wehavestreamlinedandrevitalisedthemanagementteam,developedanewstrategicplananddramaticallyreducedbasecostsandoverheads.Thefocusisnowonincreasingrevenuesthroughcross-sellingtoexistingcustomers,andgrowinganddiversifyingourcustomerbase.TheUSbusinessmustnowrealisethesubstantialinterestinthetechnologyandcommercialisethesamplesandteststhatarebeingcarriedout.Thedirectionandframeworkhasbeensettoachievethis.
UK: Hardide Coatings Limited
TheUKoperatingcompany,HardideCoatingsLimited,deliveredFY2008revenueof£1.97million,down18%from£2.41millionin2007.ThecompanyachievedmaidenprofitinH12008butthefullyearresultsweredrivendownbythesuddencustomerde-stocking.OrdersresumedfromthiscustomerinQ42008andhavesincereturnedtopreviouslevels.Weareworkingmorecloselywiththecustomertominimisetheeffectofanyrepetitionofsuchasituation.
InH12008,theGroupnegotiatedaglobalgassupplyagreementfortungstenhexafluoride,itsprincipalrawmaterial.Thisisestimatedtosaveaminimumof£600,000overathreeyearperiod.TheGroupalsonegotiatedpricesofotherprocessgasesleadingtoatotalreductioningascostsof41%.Togetherwithotherefficiencymeasures,thisledtoanimprovementof3%inthevariablecostofsales.
ThetechnicalandproductionteamsintheUKhavebeenworkinghardtoincreasefurnaceyield.ThisprojecthasachievedconsiderablesuccessandisreportedonmorefullyintheTechnology,Research&Developmentsection.Theresultantincreaseincapacitydeferstheneedforadditionalcapitalexpendituretomeetdemand.UKgrossmarginremainshealthy,althoughdownby2%duetoreducedsalesandfixedproductioncosts.
Asreportedintheinterimresults,theUKbusinessenteredathree-yeartestprogrammewithAirbusduringtheyear.Theresultssofarhavebeenencouragingalthoughthisisunderstandablyariskaversesectoranditwilltaketimetomovetoacommercialbasis.
In my first six months, I have been impressed and encouraged by the strength of the Hardide technology, the quality of people and the commitment of our customers.
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US: Hardide Coatings, Inc.
TheUSoperatingcompanywasstrengthenedwiththeappointmentinNovember2007ofKenSiddall,nowUSVicePresidentandGeneralManager.Kenbringsover20yearsofcoatingtechnology,engineeringandgeneralmanagementexperienceandhasbeeninstrumentalinimplementingtheoperationalandproductionpracticesnecessarytounderpincommercialsuccessintheUS.However,thesalescycleistakinglongerthananticipatedandrevenueshavebeenslowtodevelop,withFY2008salesof$0.41million;althoughthisisanincreaseof164%oversalesof$0.16millionin2007.Inthelastsixmonths,significantprogresshasbeenmadeinidentifyingandfocusingoncoremarkets.Localengineeringsupporthasalsobeenestablishedtosupportsamplingandsales.Havingthoroughlyreviewedthepipelineofnewbusinessandpersonallymetkeyprospectivecustomers,Iamoptimisticthatconversions,particularlyinthevalvesector,willberealisedduring2008/09.
Relationshipswithlocalsuppliershavebeenstrengthenedtosupportquickturnaroundwiththeresultthatsamplesarebeingprocessedinapproximatelyhalfthetimethatittookonlyninemonthspreviously.Thisisalreadyleadingtoimprovedcustomerrelationships.
ThefacilityachievedISO9001inNovember2007.
Markets
AstrategicreviewwascarriedoutinApril2008andre-visitedindepthonmyappointmentinJune2008.Ourcoremarketsarelarge,growingandprofitableandweareconfidentthatoilandgas,valvesandpumps,andaerospaceremainsectorsofhighpotentialfortheGroup.However,diversificationofproductsalestomajorcustomersandsalestonewcustomersisfundamentaltogrowingasolidandvaluablebusiness.Toacceleraterevenuegenerationweareintensifyingourfocusondevelopingnewbusinesswithkeycustomersthroughstrongcustomerrelationshipmanagement,andingeneratingnewbusinessinourcoremarketsandforexistingapplications.Wearealsoinvestigatingnewsectorswhichrequiremoderateresourceinvestmentforhighpotentialreturn.Anorganisationalframeworkandevaluationsystemhavebeenestablishedtoprioritisetheseopportunities.
Wearemakingprogresswiththecoatingofindustrialdiamonds;anewmarketwithexcitingpotential.WeareworkingcloselyinboththeUKandUSwithleadingmanufacturersofindustrialdiamondsthatareusedindrillandsawtoolsintheoilandgas,miningandconstructionindustries.ThisapplicationisforanewandpatentedtungstencarbideHardidecoatingthatoffersanunprecedentedcombinationofadhesiveandprotectiveproperties.Improvedtoolperformanceanddurabilityisexpectedtoofferimpressivecostsavingstousers.Testingtodateisencouragingandisapriorityforourtechnicalteam.
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Chief Executive Officer’s Review continued
Health, Safety and Environment
Theeffectivemanagementofhealth,safetyandenvironmental(HSE)riskscontinuestobeapriorityfortheboardandmanagementofHardideplc.TheUKandUSfacilitieshavecompliedwithallHSEregulationsthroughouttheyear.
FollowingISO14001certificationinSeptember2007,theUKbusinesswaspraisedbyLRQAthisyearforprogressmadeininternalmaintenance,wastemanagementanddutyofcare.Iamalsopleasedtoreportthatelectricityconsumptionwasreducedby14%duringtheyear.
AGroup-wideenergyawarenessprogrammeandpolicyisbeingintroducedtoassistenergyconsumptionreductionandmeasuresarebeingtaken,particularlybyfurnacestaff,toensurethatelectricityandgasconsumptionateveningsandweekendsisminimised.TheUSbusinessenteredintoanelectricitycontractthatusesatleast10%renewableresources.
Technology, Research & Development
AnApplicationsDevelopmentGroupledbyTechnicalDirector,DrYuriZhuk,wasformedduringtheyeartostrategicallyevaluate,prioritise,manageandmonitorthedevelopmentofnewapplicationsforboththeUKandUSfacilities.Thishasresultedinamorecohesiveandcommercially-orientedapproachtothedevelopmentandtestingofnewapplications.PreviouslytheGroupprocessedandtestedover200samplesperannum,althoughmanyofthesecouldneverbecommerciallyviable.Thenewandfocusedstrategyisconcentratingonarotationoffarfewerkeyprojects,allofwhichhavescoredhighlyintheevaluationprocess.Thisallowsforthedisciplinedattentionoflimitedresourcesandisalreadyprovingsuccessful,withtworecentlycompletedprojectsexpectedtogeneratecommercialordersinthenearfuture.Oneoftheprojects,whichisforaUScustomer,hasresultedina400%increaseinfurnaceyieldfor2”ballvalves,oneofthemostcommoncomponentsforHardidecoating.Acombinationofhigh-capacityjigging,alargerfurnacebellandmodificationstothecoatingprocesshasquadrupledthefurnaceloadcapacityforthispart.ThisreducestheunitcosttothecustomerandoffersrawmaterialandprocesscostefficienciestotheGroup.Plansareunderwaytoreplicatethissuccesswithothercommonly-coatedcomponenttypes.
Lastyear’sinvestmentinstate-of-the-artscientificequipmenthaspaiddividendswithimprovementsintheproductionprocessandlowermaterialcosts.Asauniquetechnologywithawidevarietyofapplications,weinevitablyexperienceoccasionalprocessfailures.Thisyearwereworked40%fewerpartsduetopre-treatmentstagefailures.ThisisprimarilyduetotheuseoftheX-rayfluorescenceequipmentpurchasedlastyeartoswiftlyandaccuratelydiagnoseandunderstandthecauseofanyfailures.
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Hardide allows a level of design
flexibility that we have not found
in other coatings. This means that
we can easily revise designs and
increase component complexity in
the knowledge that Hardide can be
applied exactly where we want it.
Jeff RutlandDirectorofEngineeringMeciriaLtd
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Thecontinualimprovementinloadingandjiggingtechniquesandintherobustnessofthecoatingprocesswillrealiseevengreateryieldsfromfurnaceruns.Recenttrialshavevalidatedtoolingtechniquesthatareincreasingyieldsbyupto300%onsomecomponents.
TheGroup’sR&Dactivitieshavealsobeenre-prioritisedinthecourseoftheyear.ThedevelopmentofvariantcoatingsfordiamondsandtitaniumhavebeenidentifiedaskeyprojectsforR&Dresources.Thesearebothmedium-termprojectswithhighpotentialfornewopportunitiesinourexistingoilandgas,andaerospacemarketsanddiversificationintominingandFormula1motorsport.Developmentworkisbeingundertakeninconjunctionwithcustomerpartnersalthoughbothprojectswillrequirecapitalinvestmentforscale-upandcommercialisation.
Outlook
Wearealreadyseeingthebenefitsofaflattermanagementstructure,goalalignmentbetweentheUKandUS,andbetterengagementwithkeycustomers.ThefocusmustnowbeonrevenuegenerationandIbelievewearewellplacedtogrowsalesinallofourkeymarketsoverthenextyear.WehavesomeexcitingprospectsinthepipelineandIexpectasmallnumberoflargeandstrategicallysignificantnewapplicationandnewcustomergainsin2008/09.Meanwhile,weremainfirmlyfocusedoncontrollingcostsandmaximisingoperatingefficiencies.TheboardisoptimisticaboutthefutureofthebusinessinboththeUKandUS.
ThemanagementandstaffacrosstheGrouphaveenduredayearofchange.Itistestamenttothestrengthofpreviousrecruitmentandbeliefinthefutureofourbusinessthatthelargemajorityofpeopleandtalenthaveremainedinplaceanddedicatedtosuccess.IwouldliketothankallstaffthroughouttheGroupfortheircontinuedloyalty,hardworkandsupport.
Dr Graham HineChiefExecutiveOfficer08December2008
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Financial Review
OverallGroupsalesdecreasedto£2.12mfrom£2.47minthepreviousyearandrevenuefromtheUKoperation,HardideCoatingsLimitedwasdown18%to£1.97m.However,afallinUKvariablecostsof33%anda16%reductioninoverheadshelpedmitigatetheimpactoftherevenuedeclinesuchthattheUKpre-taxlosswas£134,000comparedtoaUKpre-taxlossof£50,000onsalesof£2.39mlastyear.TheUKoperationachievedanEBITDApositivepositionandwasalsosubstantiallycashpositivefortheyear.Tightcontrolofworkingcapitalreducedlevelsofstockanddebtorstoaroundhalftheirlevelofayearago.
ThedepressedsalesperformancehasmaskedtheconsiderableprogressthattheGrouphasmadebothintermsofprocessefficiencyandsuccessinsecuringadvantageoussupplycontractsforourprincipalrawmaterials.Groupvariablecostofsalesfellby21%asaresultofthesemeasureswhileenergyefficiencyandimprovedpurchasinghelpedreduceenergycostsby11%yearonyear.Afterincludingproductionsalaries(whichrepresentmorethan50%ofcostofsales)Groupoverallgrossmarginfellby5%.Thefinancialbenefitsfromtheconsiderabletechnicaldevelopmentsthroughouttheyearsuchasfurnaceyieldonlybegantoimpactattheendofthisyearandfurtherbenefitsshouldbecomeapparentin2009.
SalesfromourHoustonfacilitymorethandoubledto$0.41malthoughtheyhavebeenslowertodevelopthananticipated.Theappointmentofanexperiencedandlocally-basedGeneralManagerhasimprovedthefocusonmarginsandyieldsuchthattoproducesalesgrowthof164%incurredacostofsalesincreaseofonly39%.
InMay2008,theGroupembarkedonaprogrammetocutdiscretionaryandcapitalexpenditureandtotightencostcontrols.Significantcutsweremadetooverheadsaspartofthisrollingcostreductionprocess,reducingtheseonanannualisedbasisby£600,000.Thebenefitsofthesecutswillflowthroughto2009.Themajorityofthedeclineinadministrativeexpensesshownin2008isduetothefavourableexchangeratevarianceontheintercompanyloan.
Thedepreciationchargeincludes£47,000forone-offadjustments.Financecostsof£187,000include£79,000fornon-cashFRS25chargesforcombinedinstruments.
TheGroupwillcontinuetofocusoncashretentionandoverheadreduction,aswellascontinuingtosteerourHoustonoperationtowardscashpositivestatus.Wearegratefulforthecontinuedsupportofourmajorshareholdersthroughwhathasbeenadifficultyear.
Peter DavenportFinanceDirector08December2008
While consolidated turnover was down by 14% over the year, the Group made positive progress in a number of areas and has implemented stringent forecasting and other methodologies which have improved the financial heart of the business.
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For years we have struggled with the design of unique pump components,
trying to strike a balance between performance and manufacturability. The
Hardide process allows us to finish machine the intricate geometry then add
a precise thickness of the Hardide matrix to produce a part with great wear
characteristics and low co-efficient of friction. Recently, a customer suffered a
system upset and introduced a large amount of ceramic bead catalyst to the
pumpage and destroyed all of the 8 stage pump internals except the Hardide-
coated components. The Hardide-coated components were re-used in the
refurbished pump.
Dennis BowmanConsultingEngineerAlfredConhagen,Inc
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Board of Directors
Robert John Goddard(57)Non-ExecutiveChairman
RobertGoddardwasappointedasnon-executivechairmaninJanuary2008.Acharteredengineer,hewasontheexecutiveboardofBurmahCastrolplcandpreviouslymanageditsworldwidefuelsbusinessandasubstantialportionofitschemicalsbusiness.HesubsequentlyjoinedAmberleyGroupPLCwherehewaschiefexecutive,responsibleforturningroundandsellingonitsfourspecialitychemicalsubsidiaries.Mostrecentlyhehasundertakenavarietyofadvisoryandturnaroundassignments.Heisalsochairmanofagroupdevelopingawaste-to-energybusiness.
Dr (Richard) Graham Hine(54)ChiefExecutiveOfficer
GrahamHinewasappointedaschiefexecutiveofficerinJune2008.HejoinedHardidefromP2iLimitedwherehewaschairmanandchiefexecutiveoftheMinistryofDefencetechnologyspin-outfromPortonDown.AtP2iheoversawthecreationoftheworld’sleadinghydrophobicsurfaceenhancementcompany.DrHinebeganhiscareeratPhilipsPLCandhassubsequentlyheldanumberofdirector-levelbusinessdevelopmentandgeneralmanagementroles.Hehasmorethantwelveyears’experienceinchairmanandCEOpositionswherehesignificantlygrewshareholdervalueintechnology-basedcompaniesintheadvancedmaterialsandsensorindustries.
Peter Neil Davenport(42)FinanceDirector
PeterDavenportwasappointedfinancedirectorofHardideplcinMarch2006.HejoinedHardideinJune2005asfinancialcontrollerbringingtenyears’financialmanagementexperience.MrDavenportwaspreviouslyfinancialcontrollerattheUKsubsidiaryofNYSE-listedglobalcoatingscompanyValsparCorporation.HeisanassociateoftheCharteredInstituteofManagementAccountants.
Dr Yuri Nikolaevich Zhuk(47)TechnicalDirector
YuriZhukisaco-founderofHardideCoatingsLimitedandisresponsibleforthecompany’stechnology,research&development,patentingandapplicationsdevelopmentprogrammes.Previously,heco-foundedTetraConsultLtd,aMoscow-basedtechnologyconsultancycompanywherehespecialisedininternationaltechnologycommercialisationandtransferdeliveringprojectsforcompaniesincludingICI,GM,Johnson&JohnsonandSamsung.Inthelastyear,DrZhukhasgainedanMBAfromtheOpenUniversity.
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Hugh Carlisle Smith (62)Non-ExecutiveDirector
HughSmithjoinedtheboardofHardideplcinMarch2005havingbeenontheboardofHardideCoatingsLimitedsinceMay2003.HewasformerlyaseniorexportmanageratBritishLeylandbeforehelpingtofoundAllmakesLimited,oneoftheUK’slargestindependentsuppliersofLandRoversparepartsandwherehewaschairmanuntilOctober2006.Heholdsanumberofnon-executivedirectorships.
David Edward Christian Mott (35)Non-ExecutiveDirector
DavidMottwasappointedtotheboardofHardideplcinMarch2005.HejoinedtheboardofHardideCoatingsLimitedinApril2004.MrMottistheco-founderofOxfordCapitalPartnersand,since1999,hasledover30venturecapitaltransactionsinscienceandtechnologycompanies.HespenthisearlycareerwithJardineFleminginAsiaasanequitiesanalystfollowedbyDeloitte&ToucheinLondon.
William Yale Zakroff (58)Non-ExecutiveDirector
WilliamZakroffjoinedtheboardofHardideplcinJune2007.BasedinHouston,Texas,heisthefounderandCEOofMarinusPowerLLC,amarinerenewableenergyfirm,andisco-founderandadirectorofSyncWaveSystemsInc.MrZakroffalsocontinuestoprovideinternationalbusinessdevelopmentandgeneralmanagementconsultingservicesunderZakroffGroupLPandisontheAdvisoryBoardofIngeneroInc.PriortofoundingZakroffGroupin1984,heheldvariousmanagementpositionswithintheadvancedmaterialsgroupoftheGeneralElectricCompany(US).
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Results
TheGrouplossfortheperiod,aftertaxation,amountedto£1,703,000(2007:£1,831,000loss).
Directors
Thepresentmembershipoftheboardissetoutonpages12and13.Changestomembershipoftheboardduringtheyearisshownbelow,aswellasthebeneficialinterestsofthedirectorsandtheirfamiliesinthesharesoftheCompany.
30September2008 30September2007 Appointed Resigned Numberofshares Numberofshares
RobertGoddard 28January2008 135,000 -
DavidMott 14March2005 - -
HughSmith 14March2005 4,012,900 2,120,400
WilliamZakroff 26June2007 25,000 -
JimMurray-Smith 3February2005 11April2008 1,078,000 1,078,000
GrahamHine 2June2008 - -
YuriZhuk 14March2005 4,364,465 4,364,465
PeterDavenport 21March2006 560,000 -
DavidMottisadirectorofOxfordCapitalPartnerswhichholds4,441,667ordinaryshares(2007:4,275,000).
Nodirectorhad,duringorattheendoftheyear,amaterialinterestinanycontractwhichwassignificantinrelationtotheCompany’sbusinessexceptasdisclosedinNote19tothefinancialstatements.
Directors’ interest in share options
TheCompanyhasshareoptionschemesunderthetermsofwhichdirectorsareabletosubscribeforordinarysharesintheCompany.Detailsofthedirectors’interestinshareoptionsareshowninnote18totheGroupaccounts.
Directors’ responsibilities for the financial statements
ThedirectorsareresponsibleforpreparingtheannualreportandthefinancialstatementsinaccordancewithapplicablelawandInternationalFinancialReportingStandards.
UnitedKingdomcompanylawrequiresthedirectorstopreparefinancialstatementsforeachfinancialyearwhichgiveatrueandfairviewofthestateofaffairsoftheGroupandoftheCompanyandoftheprofitorlossoftheGroupforthatperiod.Inpreparingthosefinancialstatements,thedirectorsarerequiredto:-
n selectsuitableaccountingpoliciesandthenapplythemconsistently;
n makejudgementsandestimatesthatarereasonableandprudent;
n preparethefinancialstatementsonthegoingconcernbasisunlessitisinappropriatetopresumethattheGroupwillcontinueinbusiness;and
n statewhetherapplicableInternationalFinancialReportingStandardshavebeenfollowed,subjecttoanymaterialdeparturesdisclosedandexplainedinthefinancialstatements.
ThedirectorsareresponsibleforkeepingproperaccountingrecordsthatdisclosewithreasonableaccuracyatanytimethefinancialpositionoftheGroupandCompanyandenablethemtoensurethefinancialstatementscomplywiththeCompaniesAct1985.TheyarealsoresponsibleforsafeguardingtheassetsoftheGroupandhencefortakingreasonablestepsforthepreventionanddetectionoffraudandotherirregularities.
Report of the Directors
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Insofarasthedirectorsareaware:
n thereisnorelevantauditinformationofwhichtheCompany’sauditorisunaware,and
n thedirectorshavetakenallstepsthattheyoughttohavetakentomakethemselvesawareofanyrelevantauditinformationandtoestablishthattheauditorsareawareofthatinformation.
ThedirectorsareresponsibleforthemaintenanceandintegrityofcorporateandfinancialinformationincludedontheGroup’swebsite.LegislationintheUnitedKingdomgoverningthepreparationanddisseminationoffinancialstatementsmaydifferfromlegislationinotherjurisdictions.
Financial risk management objectives and policies
TheGroupusesvariousfinancialinstrumentsincludingfinanceleases,equityandloans,andcashandvariousitems,suchastradedebtorsandtradecreditorsthatarisedirectlyfromitsoperations.ThemainpurposeofthesefinancialinstrumentsistoraisefinancefortheGroup’soperations.TheexistenceofthesefinancialinstrumentsexposestheGrouptoanumberoffinancialrisks.Themainrisksarecurrencyriskandinterestraterisk.Thedirectorsreviewandagreepoliciesformanagingeachoftheserisks.FurtherdisclosureisprovidedinNote20.
Substantial shareholders
At5December2008thefollowinghadnotifiedtheCompanyofadisclosableinterestin3%ormoreofthenominalvalueoftheCompany’sshares:
Name Shareholding %
RBoyce&Associates 32,543,892 17.2
AllianzInsurance 27,139,332 14.3
ABadenoch&Associates 22,400,680 11.8
ProgressiveAssetManagement 7,990,530 4.2
NobleFundManagers 6,400,000 3.4
Payment policy and practice
ItistheCompany’spolicythatpaymentstosuppliersaremadeinaccordancewiththosetermsandconditionsagreedbetweentheCompanyanditssuppliers,providedthatalltradingtermsandconditionshavebeencompliedwith.At30September2008theGrouphadanaverageof34daysoutstandingintradecreditors(2007:51days).
Corporate Governance
Theboardhasthefollowingcommittees:
Remuneration
TheRemunerationCommitteecomprisesHughSmith(Chairman)andDavidMott.DuringthefinancialyeartheRemunerationCommitteemetonanumberofoccasions.Theremitofthecommitteeistodeterminetheremunerationpackagesoftheexecutivedirectors,approveanyshareoptionproposalsforotheremployees(suchproposalsnormallybeingputforwardbytheCEO)andundertakeinvestigationsregardinganypotentialdisciplinarymattersregardingboardmembers.
Thecommitteeusesindependentresearchtohelptodecideafairlevelofremunerationforexecutivedirectors.InthecaseoftheCEOthepackageismadeupofacombinationofsalary,bonuses,shareoptionsandotherbenefits.Thelevelofbonusesisdeterminedbasedonacombinationofsalesachieved,profitabilityandsharepricegrowth.NobonuswaspaidouttotheCEOinthefinancialyears2007or2008.
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InthecaseoftheFinanceDirectorandTechnicalDirector,theirpackagesaremadeupofacombinationofsalary,otherbenefitsandshareoptions.
CEO PackageTheCEOispaidasalaryof£120,000plusacarallowanceof£10,000.Inadditionabonusplanisinplacewhichwillrewardhimupto50%ofsalaryifthefollowingtargetsareachieved:
16.67%ofbonusplanifHardidePLCachievesagrossprofitinexcessof£2,100,000duringthefinancialyear;andafurther16.67%ofbonusplanifHardidePLCachievesagrossprofitinexcessof£2,500,000;
16.67%ofbonusplanifHardidePLCachievesaEBITDAinexcessof£200,000duringthefinancialyear;andafurther16.67%ofbonusplanifHardidePLCachievesaEBITDAinexcessof£400,000duringthefinancialyear;
Upto33.33%ofbonusplanatthediscretionoftheboard,basedonoverallperformanceagainsttargetssetbytheboard.
Share OptionsOptionshavebeenissuedtotheCEOonthefollowingbasis:6,000,000optionshavebeenissuedtotheCEOatanexercisepriceof£0.03p.Theseshareswillvestprogressivelyoveraperiodof3yearsfromOctober2008.SharesmayvestearlierthanthatintheeventthattheCompanyissoldbeforeOctober31st2011.
Audit
TheAuditCommitteecomprisesDavidMott(Chairman)andHughSmith,bothnon-executivedirectorsoftheCompany.
TheCommitteeoverseesthemonitoringoftheGroup’sinternalcontrols,accountingpoliciesandfinancialreportingandprovidesaforumthroughwhichtheexternalauditorsreport.Italsoreviewsthescopeandresultsoftheexternalaudit;theindependenceandobjectivityoftheauditors;andmakesrecommendationstotheboardonissuessurroundingtheauditor’sremuneration,appointment,resignationandremoval.TheCommitteeisauthorisedbytheboardtoseekandobtainanyinformationitrequiresfromanyofficeroremployeeoftheCompanyandtoobtainexternallegalorotherindependentprofessionaladvice.
Duringtheyear,theCommitteerecommendedtotheboardthattheCompanyinvitetendersfortheroleofauditor.Fivecompaniestenderedfortheroleandafterreviewingthesetenders,theCommitteerecommendedthattheCompany’spreviousauditorbereplacedwithCritchleysCharteredAccountants,whointheopinionoftheCommitteeofferedtheappropriatelevelsofcompetenceandvalue.CritchleyshasanexistingrelationshipwiththeCompanyandprovidespayrollservicestotheCompanyanditsUKsubsidiary,HardideCoatingsLimited.ItistheCommittee’sviewthatthisdoesnotcompromisetheindependenceandobjectivityoftheauditorfortheyearinquestion.Critchleyswillceasetoprovidepayrollservicesduringthecurrentyear.
TheAuditCommitteehasreviewedtheeffectivenessofthesystemofinternalcontrolthroughouttheyearanduptothedatethatthefinancialstatementsweresigned,andthisreviewdidnotidentifyanysignificantfindingsorweaknesses.
TheCommitteehasreviewedanddiscussedtheCompany’sauditedfinancialstatementswithmanagement,whichhasprimaryresponsibilityforthefinancialstatements.CritchleysCharteredAccountants,theCompany’sindependentauditor,isresponsibleforexpressinganopinionontheconformityoftheCompany’sauditedfinancialstatementswithgenerallyacceptedaccountingprinciples.Basedontheconsiderationsreferredtoabove,theCommitteerecommendedtotheboardofdirectorsthattheauditedfinancialstatementsbeincludedintheCompany’sAnnualReport.
Auditor
AresolutiontoreappointCritchleysasauditorwillbeproposedattheAnnualGeneralMeeting.
Report of the Directors continued
16
0820Annual Report
Business Review
TheboardregularlyreviewsboththefinancialpositionoftheGroupandnon-financialperformanceinformation.FinancialinformationincludesmonthlybalancesheetsandprofitandlossaccountsfortheGroup,Companyandsubsidiaries,togetherwithanalysisofmovementsincash,tradedebtorsandfixedassets.Non-financialinformationreviewedbytheboardincludesreportsandkeyperformanceindicatorsincludingfurnaceperformance,deliveryperformance,researchanddevelopmentactivity,salesactivityandhealthandsafety.Duringtheyear,theCompanyhasmadegoodprogressindevelopinganumberofnon-financialKPIswhichareenablingustomonitor,benchmarkandimproveourperformanceacrossarangeofenvironmental,production,operations,salesandhumanresourcemeasures.
Onbehalfoftheboard,
Graham HineDirector05December2008
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Report of the Independent Auditor
WehaveauditedtheGroupandparentCompanyfinancialstatementsofHardidePlcfortheyearended30September2008whichcomprisetheConsolidatedIncomeStatement,theConsolidatedandCompanyBalanceSheets,theConsolidatedCashFlowStatement,theConsolidatedStatementofRecognisedIncomeandExpenseandtherelatednotes.Thesefinancialstatementshavebeenpreparedundertheaccountingpoliciessetouttherein.
ThisreportismadesolelytotheCompany’smembers,asabody,inaccordancewithSection235oftheCompaniesAct1985.OurauditworkhasbeenundertakensothatwemightstatetotheCompany’smembersthosematterswearerequiredtostatetotheminanauditors’reportandfornootherpurpose.Tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilitytoanyoneotherthantheCompanyandtheCompany’smembersasabody,forourauditwork,forthisreport,orfortheopinionswehaveformed.
Respective responsibilities of directors and auditor
Thedirectors’responsibilitiesforpreparingtheAnnualReportandAccountsandtheGroupFinancialStatementsinaccordancewithapplicablelawandInternationalFinancialReportingStandardsasadoptedbytheEuropeanUnionandforpreparingtheparentCompanyfinancialstatementsinaccordancewithapplicablelawandUnitedKingdomAccountingStandards(UnitedKingdomGenerallyAcceptedAccountingPractice)aresetoutintheStatementofDirectors’Responsibilities.
OurresponsibilityistoauditthefinancialstatementsinaccordancewithrelevantlegalandregulatoryrequirementsandInternationalStandardsonAuditing(UKandIreland).
Wereporttoyououropinionastowhetherthefinancialstatementsgiveatrueandfairview,whethertheyhavebeenproperlypreparedinaccordancewiththeCompaniesAct1985andwhethertheinformationgivenintheDirectors’Reportisconsistentwiththosefinancialstatements.Wealsoreporttoyouif,inouropinion,theCompanyhasnotkeptproperaccountingrecords,ifwehavenotreceivedalltheinformationandexplanationswerequireforouraudit,orifinformationspecifiedbylawregardingdirectors’remunerationandothertransactionsisnotdisclosed.
WereadotherinformationcontainedintheAnnualReportandconsiderwhetheritisconsistentwiththeauditedfinancialstatements.Thisotherinformationcomprisesonlythefinancialhighlights,theChairman’sStatement,theChiefExecutive’sReview,theFinancialReview,andtheReportoftheDirectors.Weconsidertheimplicationsforourreportifwebecomeawareofanyapparentmisstatementsormaterialinconsistencieswiththefinancialstatements.Ourresponsibilitiesdonotextendtoanyotherinformation.
Basis of audit opinion
WeconductedourauditinaccordancewithInternationalStandardsonAuditing(UKandIreland)issuedbytheAuditingPracticesBoard.Anauditincludesexamination,onatestbasis,ofevidencerelevanttotheamountsanddisclosuresinthefinancialstatements.Italsoincludesanassessmentofthesignificantestimatesandjudgmentsmadebythedirectorsinthepreparationofthefinancialstatements,andofwhethertheaccountingpoliciesareappropriatetotheGroup’sandCompany’scircumstances,consistentlyappliedandadequatelydisclosed.
Weplannedandperformedourauditsoastoobtainalltheinformationandexplanationswhichweconsiderednecessaryinordertoprovideuswithsufficientevidencetogivereasonableassurancethatthefinancialstatementsarefreefrommaterialmisstatement,whethercausedbyfraudorotherirregularityorerror.Informingouropinionwealsoevaluatedtheoveralladequacyofthepresentationofinformationinthefinancialstatements.
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0820Annual Report
Opinion
Inouropinion:
n theGroupfinancialstatementsgiveatrueandfairview,inaccordancewithInternationalFinancialReportingStandardsasadoptedbytheEuropeanUnion,ofthestateoftheGroup’saffairsasat30September2008andofitslossfortheyearthenended;
n theparentCompanyfinancialstatementsgiveatrueandfairview,inaccordancewithUnitedKingdomGenerallyAcceptedAccountingpractice,ofthestateoftheparentCompany’saffairsasat30September2008;
n thefinancialstatementshavebeenproperlypreparedinaccordancewiththeCompaniesAct1985;and
n theinformationgivenintheDirectors’Reportisconsistentwiththefinancialstatements.
Emphasis of matter - loan by Hardide plc to Hardide IncIncludedindebtorsintheCompanybalancesheetisanamountof£3,647,000duefromHardideInc.Informingouropiniononthefinancialstatements,whichisnotqualified,wehaveconsideredtheadequacyofthedisclosuresmadeinnote4totheCompanyfinancialstatementsconcerningtherecoverabilityofthisloan.Thedisclosureindicatesamaterialuncertaintyregardingtherecoverabilityofthisloan.Thefinancialstatementsdonotincludetheadjustmentsthatwouldresultiftheloanwerenotrecoverable.
Emphasis of matter - going concernInformingouropiniononthefinancialstatements,whichisnotqualified,wehaveconsideredtheadequacyofthedisclosuresmadeinnote1concerningtheGroup’sabilitytocontinueasagoingconcernshouldtheGroupunderperformitscurrentplanforrevenue,costsandcashflow.Thedirectorsareconfidentthatthiswilleitherbeachievedorthatfreshfundingwillbeavailable.ThefinancialstatementsdonotincludetheadjustmentsthatwouldresultiftheGroupwasunabletocontinueasagoingconcern.
Critchleys Chartered AccountantsRegisteredAuditorsAbingdon21January2009
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Note 2008 2007 £’000 £’000
Revenue 2 2,123 2,470
Costofsales (1,132) (1,180)
Gross profit 991 1,290
Administrativeexpenses (2,081) (2,676)
Depreciationandamortisation (500) (475)
Operating profit 3 (1,590) (1,861)
Financeincome 4 37 31
Financecosts 5 (187) (25)
Profit on ordinary activities before taxation (1,740) (1,855)
Taxation 7 37 24
Profit on ordinary activities after taxation (1,703) (1,831)
Losspershare:Basic 8 (1.1)p (1.2)p
Losspershare:Diluted 8 (0.8)p (1.1)p
Alloperationsarecontinuing.
Theaccompanyingaccountingpoliciesandnotesformanintegralpartofthesefinancialstatements.
20
Consolidated Income Statement for the year ended 30 September 2008 08
20Annual Report
Consolidated Balance Sheet at 30 September 2008
Note 2008 2007 £’000 £’000
Assets Non-current assets Goodwill 9 69 69
Intangibleassets 10 4 7
Property,plant&equipment 11 1,366 1,661
Total non-current assets 1,439 1,737
Current assets
Inventories 12 44 99
Tradeandotherreceivables 12 325 648
Othercurrentfinancialassets 12 160 147
Cashandcashequivalents 12 995 1,135
Total current assets 1,524 2,029
Total assets 2,963 3,766
Liabilities
Current liabilities
Tradeandotherpayables 13 356 512
Financialliabilities 13 110 145
Total current liabilities 466 657
Net current assets 1,058 1,372
Non-current liabilities
Financialliabilities 14 1,162 893
Total non-current liabilities 1,162 893
Total liabilities 1,628 1,550
Net assets 1,335 2,216
Equity attributable to equity holders of the parent
Sharecapital 16 1,896 1,467
Sharepremium 17 4,102 3,345
Retainedearnings 17 (4,705) (3,077)
Share-basedpaymentsreserve 17 347 450
Translationreserve 17 (305) 31
Total equity 1,335 2,216
Thefinancialstatementswereapprovedandauthorisedbytheboardon5December2008.
Graham Hine Director
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22
Consolidated Cash Flow Statement for the year ended 30 September 2008
Note 2008 2007 £’000 £’000
Cash flows from operating activities Operatingprofit (1,590) (1,861)
Impairmentofintangibles 3 2
Depreciation 497 473
Shareoptioncharge 50 59
(increase)/decreaseininventories 55 23
(increase)/decreaseinreceivables 310 (224)
Increase/(decrease)inpayables (155) 72
Exchangeratevariance (391) -
Cash generated from operations (1,221) (1,456)
Financeincome 37 31
Financecosts (108) (25)
Taxreceived/(paid) 26 107
Net cash generated from operating activities (1,226) (1,343)
Cash flows from investing activities Purchaseofproperty,plantandequipment (127) (439)
Net cash used in investing activities (127) (439)
Cash flows from financing activities Netproceedsfromissueofordinarysharecapital 1,173 -
Financeleaseinception - 209
Financeleaserepayment (145) (95)
Newloansraised 225 1,000
Net cash used in financing activities 1,253 1,114
Net increase / (decrease) in cash and cash equivalents (140) (668)
Cash and cash equivalents at the beginning of the year 1,135 1,803
Cash and cash equivalents at the end of the year 995 1,135
0820Annual Report
Consolidated Statement ofRecognised Income and Expensefor the year ended 30 September 2008
Note 2008 2007 £’000 £’000
Exchangedifferencesontranslationofforeignoperations (335) 31
Net income recognised directly in equity (335) 31
Lossfortheyear (1,703) (1,831)
Total recognised income and expense for the year (2,038) (1,800)
23
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1. Accounting policies
Accounting conventionTheGrouppreviouslyreporteditsfinancialstatementsunderUKGenerallyAcceptedAccountingPractice(GAAP).From1October2007theGroupisrequiredtoprepareitsfinancialstatementsinaccordancewithInternationalFinancialReportingStandards(IFRS),InternationalAccountingStandards(IAS)andInterpretations(IFRIC).Thecomparativedatafortheyearended30September2007havebeenrestatedandreconciliationshavebeenpreparedtoexplainthechanges.
First time adoption of IFRSTheGroup’stransitiondatetoIFRSwas1October2006,whichisthebeginningofthecomparativeperiodfortheyearended30September2007.TheGrouphasappliedIFRS1forthefirsttimeadoptionofIFRSandhaselectedtousethefollowingexemptions:
n Businesscombinations–businesscombinationsthattookplacepriorto1October2006havenotbeenrestated;
n Share-basedpayment–theGrouphasappliedtherequirementsofIFRS2Share-basedpaymentstoallgrantsofequityinstrumentsafter7November2002thatwereunvestedasof1October2006.
Standards, interpretations and amendments to published standards not yet effectiveCertainnewstandards,amendmentsandinterpretationstoexistingstandardshavebeenpublishedthataremandatoryfortheGroup’saccountingperiodsbeginningonorafter1October2008orlaterperiodsandwhichtheGrouphasdecidednottoadoptearly.Theseare:
n IFRS8,OperatingSegments(effectiveforaccountingperiodsbeginningonorafter1January2009).Thisstandardsetsoutrequirementsforthedisclosureofinformationaboutanentity’soperatingsegmentsandalsoabouttheentity’sproductsandservices,thegeographicalareasinwhichitoperates,anditsmajorcustomers.ItreplacesIAS14,SegmentalReporting.Asthisisadisclosurestandard,itwillnothaveanyimpactontheresultsornetassetsoftheGroup.
n IAS1,PresentationofFinancialStatements–arevisedapproach(effectiveforaccountingperiodsbeginningonorafter1January2009.Asthisisadisclosurestandard,itwillnothaveanyimpactontheresultsornetassetsoftheGroup.
The following principal accounting policies have been applied:
Basis of preparationThefinancialstatementshavebeenpreparedonthegoingconcernbasis,underthehistoricalcostconvention.ThesefinancialstatementsarepresentedinpoundssterlingbecausethatisthecurrencyoftheprimaryeconomicenvironmentinwhichtheGroupoperates.
Going concernThedirectorsbelievethattheCompanyandtheGrouphaveadequateresourcestocontinueinoperationalexistencefortheforeseeablefuture.ThisbeliefisbasedontheGroup’scurrentbusinessplanandinparticularitsplanforrevenues,costsandcashflows,aswellastheavailabilityoffreshfunding.
Basis of consolidationTheconsolidatedfinancialstatementsincorporatethefinancialstatementsoftheCompanyandentitiescontrolledbytheCompany(itssubsidiaries)madeupto30Septembereachyear.
ControlisachievedwhereHardideplchasthepowertogovernthefinancialandoperatingpoliciesofaninvesteeentitysoastoobtainbenefitsfromitsactivities.
Thefinancialstatementsofsubsidiariesareincludedintheconsolidatedfinancialstatementsfromthedatethatcontrolcommencesuntilthedatethatcontrolceases.
Notes to the Group Financial Statements
24
0820Annual Report
25
TransactionsbetweenandbalanceswithGroupcompaniesareeliminatedtogetherwithunrealisedgainsoninter-companytransactions.Wherenecessary,adjustmentsaremadetothefinancialstatementsofsubsidiariestobringtheaccountingpoliciesusedintolinewiththoseusedbytheGroup.
Acquisitionsareaccountedforbythepurchasemethod.Thecostofanacquisitionismeasuredasthefairvalueatthedateofexchangeoftheconsiderationprovidedplusanycostsdirectlyattributabletotheacquisition.Onacquisition,theassetsandliabilitiesandcontingentliabilitiesoftheacquiredbusinessthatmeettheconditionsforrecognitionunderIFRS3aremeasuredattheirfairvaluesatthedateofacquisition.Anyexcessofthecostofacquisitionoverthefairvaluesoftheidentifiablenetassetsacquiredisrecognisedasgoodwill.Anydeficiencyofthecostofacquisitionbelowthefairvaluesoftheidentifiablenetassetsacquirediscreditedtoprofitorlossintheperiodofacquisition.
Revenue recognitionRevenuerepresentstheinvoicedamountofgoodssoldandservicesprovidedduringtheperiod,excludingvalueaddedtaxandothersalestaxes,tradediscounts,andintra-Groupsales.Revenueisrecognisedwhenperformancehasoccurredandarighttoconsiderationhasbeenobtained.Thisisnormallywhengoodshavebeendespatchedorservicesprovidedtothecustomer,titleandriskoflosshavebeentransferredandcollectionofrelatedreceivablesisprobable.
Research and developmentExpenditureonresearchanddevelopmentcostsischargedtotheincomestatementintheperiodinwhichitisincurredunlesssuchcostsshouldbecapitalisedundertherequirementsoftheapplicablestandard,whichisonlywhenthefutureeconomicbenefitsexpectedtoarisearedeemedprobableandthecostscanbereliablymeasured.
Intangible assets: GoodwillGoodwillrepresentstheexcessofthecostofacquisitionovertheCompany’sinterestinthefairvalueoftheidentifiableassetsandliabilitiesofasubsidiaryatthedateofacquisition.Goodwillisrecognisedasanassetandreviewedforimpairmentatleastannually.
GoodwillarisingonacquisitionsbeforethedateoftransitiontoIFRS(1October2006)hasbeenretainedatthepreviousUKGAAPamountssubjecttobeingtestedforimpairmentatthatdateandatleastannuallythereafter.
Ondisposalofasubsidiarytheattributableamountofgoodwillisincludedinthedeterminationoftheprofitorlossondisposal.
Intangible assets: Development costsCapitaliseddevelopmentcostsareamortisedonastraightlinebasisovertheirusefuleconomiclivesoncetheproductisavailableforuse.
Intangible assets: Other Separableintangibleassetsarerecognisedseparatelyfromgoodwillonallacquisitionsafterthedateoftransition,areinitiallymeasuredatfairvalueandamortisedovertheirusefuleconomiclives.Purchasedintangibleassetsarecapitalisedatcostandamortisedovertheirusefuleconomiclives.
Impairment of intangible assetsGoodwillisallocatedtocash-generatingunitsforthepurposesofimpairmenttesting.Therecoverableamountofthecash-generatingunittowhichthegoodwillrelatesistestedannuallyforimpairmentorwheneventsorchangesincircumstancesindicatethatitmightbeimpaired.Anyimpairmentisrecognisedimmediatelyintheincomestatementandisnotsubsequentlyreversed.
Intangibleassetsotherthangoodwillaretestedforimpairmentwhenatriggereventoccurs.Usefullivesarealsoexaminedonanannualbasisandadjustments,whereapplicable,aremadeonaprospectivebasis.
0820Annual Report
1. Accounting policies continued
Recoverableamountisthehigheroffairvaluelesscoststosell,andvalueinuse.Inassessingvalueinuse,theestimatedfuturecashflowsarediscountedtotheirpresentvalueusingapre-taxdiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheassetforwhichtheestimatesoffuturecashflowshavenotbeenadjusted.Animpairmentlossisrecognisedtotheextentthatthecarryingvalueexceedstherecoverableamount.
Animpairmentlossisrecognisedasanexpenseimmediately,unlesstherelevantassetiscarriedatarevaluedamount,inwhichcasetheimpairmentlossistreatedasarevaluationdecrease.Areversalofanimpairmentlossisrecognisedasincomeimmediately,unlesstheassetiscarriedatarevaluedamount,inwhichcasethereversaloftheimpairmentlossistreatedasarevaluationincrease.
Property, plant and equipmentProperty,plantandequipmentarestatedatcostlessaccumulateddepreciationandanyrecognisedimpairmentloss.
Depreciationisprovidedonthecostofassetslessanyresidualvalueovertheirestimatedusefullives,usingthestraightlinemethod,asfollows:
Plant&machinery 2to10years Leaseholdimprovements Overremainingtermoflease Fixtures&fittings 4years Computerequipment 4years
Depreciationisnotchargedonassetsunderconstruction.
Borrowingcostsrelatedtothepurchaseoffixedassetsarenotcapitalised.
Thecarryingvaluesofproperty,plantandequipmentandinvestmentsmeasuredusingacostbasis,arereviewedforimpairmentonlywheneventsindicatethecarryingvaluemaybeimpaired.
InvestmentsInvestmentsheldasfixedassetsarestatedatcostlessanyprovisionforimpairment.
InventoriesInventoriesarevaluedatthelowerofcostandnetrealisablevalue.Thecostsincurredinbringingeachproducttoitspresentlocationandconditionareaccountedforasfollows:
Rawmaterials Costofpurchaseonafirstin,firstoutbasis
Workinprogressand Costofrawmaterialsanddirectlabourandaproportionofmanufacturing finishedgoods overheadsbasedonthenormallevelofactivity
Netrealisablevalueisbasedontheestimatedsellingpricelessestimatedcoststocompletionandestimatedcostsnecessarytomakethesale.
LeasesFinanceleases,whichtransfertotheGroupsubstantiallyalltherisksandbenefitsincidentaltoownershipoftheleaseditem,areincludedinthebalancesheetatfairvalueor,iflower,atthepresentvalueoftheminimumleasepayments.Depreciationischargedovertheusefuleconomiclifeoftheassets.Leasepaymentsareapportionedbetweenthefinancechargesandthereductionoftheleaseliabilitysoastoachieveaconstantrateofinterestontheremainingbalanceoftheliability.
Leaseswherethelessorretainssubstantiallyalltherisksandrewardsofownershipareclassifiedasoperatingleases.Rentalspayableunderoperatingleasesarechargedtotheincomestatementonastraightlinebasisoverthetermofthelease.
Notes to the Group Financial Statements continued
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27
Financial InstrumentsTheGroupdoesnotenterintohedgingorspeculativederivativecontracts.
FinancialassetsandliabilitiesarerecognisedontheGroup’sbalancesheetwhentheGroupbecomesapartytothecontractualprovisionsoftheinstrument.
Incomeandexpenditurearisingonfinancialinstrumentsisrecognisedontheaccrualsbasis,andcreditedorchargedtotheprofitandlossaccountinthefinancialperiodtowhichitrelates.
Financial liabilities and equityFinancialliabilitiesandequityinstrumentsareclassifiedaccordingtothesubstanceofthecontractualarrangementsenteredinto.
Afinancialliabilityexistswherethereisacontractualobligationtodelivercashoranotherfinancialassettoanotherentity,ortoexchangefinancialassetsorfinancialliabilitiesunderpotentiallyunfavourableconditions.Inaddition,contractswhichresultintheentitydeliveringavariablenumberofitsownequityinstrumentsarefinancialliabilities.Sharescontainingsuchobligationsareclassifiedasfinancialliabilities.
Financecostsandgainsorlossesrelatingtofinancialliabilitiesareincludedintheincomestatement.Thecarryingamountoftheliabilityisincreasedbythefinancecostandreducedbypaymentsmadeinrespectofthatliability.
AnequityinstrumentisanycontractthatevidencesaresidualinterestintheassetsoftheGroupafterdeductingallofitsliabilities.Dividendsanddistributionsrelatingtoequityinstrumentsaredebiteddirectlytoreserves.
Equityinstrumentsissuedarerecordedattheproceedsreceived,netofdirectissuecosts.
Compound instrumentsCompoundinstrumentscomprisebothaliabilityandanequitycomponent.Theelementsofacompoundinstrumentareclassifiedinaccordancewiththeircontractualprovisions.Atthedateofissue,theliabilitycomponentisrecordedatfairvalue,whichisestimatedusingtheprevailingmarketinterestrateforasimilardebtinstrumentwithouttheequityfeature.Thereafter,theliabilitycomponentisaccountedforasafinancialliabilityinaccordancewiththeaccountingpolicysetoutabove.Theresidualistheequitycomponent,whichisaccountedforasanequityinstrument.
Cash and cash equivalentsCashandcashequivalentsincludecashatbankandinhand,andshort-termdepositswithanoriginalmaturityperiodofthreemonthsorless.
Trade and other receivables and payablesTradeandotherreceivablesarestatedatamountsreceivablelessanyprovisionforrecoverability.Tradepayablesarestatedattheirnominalvalue.
Foreign currenciesTheCompany’sfunctionalandpresentationcurrencyisSterling.Transactionsdenominatedinforeigncurrenciesaretranslatedintosterlingattheratesrulingatthedateofthetransactions.
Monetaryassetsandliabilitiesdenominatedinforeigncurrenciesatthebalancesheetdatearetranslatedattheratesofexchangerulingatthatdate.Gainsandlossesarisingontranslationarerecognisedintheincomestatement.
Onconsolidation,theassetsandliabilitiesoftheGroup’soverseasoperationsaretranslatedintoSterlingattheexchangerateatthedateofthebalancesheet.Incomeandexpenseitemsaretranslatedattheaverageexchangeratesfortheperiod.Exchangedifferencesarisingareclassifiedasequityandaretransferredtothetranslationreserve.
ExchangegainsandlossesarisingonthetranslationoftheGroup’snetinvestmentinforeignentitiesarealsoclassifiedasequity.
0820Annual Report
1. Accounting policies continued
Share-based paymentsThefairvalueofequity-settledsharepaymentsisdeterminedatthedateofgrantandisrecognisedonastraightlinebasisoverthevestingperiodbasedontheGroup’sestimateofoptionsthatwilleventuallyvest.
FairvalueismeasuredbyuseofaBlack-Scholespricingmodel.
Retirement benefitsTheGroupoperatesastakeholderschemeforitsemployees,butnomembershavejoined.
Short-term employee benefit costsTheundiscountedamountofshort-termbenefitsattributabletoservicesthathavebeenrenderedintheperiodarerecognisedasanexpense.Anydifferencebetweentheamountofcostrecognisedandthecashpaymentsmadeistreatedasaliabilityorprepaymentasappropriate.
TaxationThechargeforcurrenttaxisbasedontheresultsfortheperiodasadjustedforitemsthatarenon-assessableordisallowed,andiscalculatedusingtaxratesthathavebeenenactedorsubstantivelyenactedbythebalancesheetdate
Deferredtaxassetsandliabilitiesarerecognisedwherethecarryingamountofanassetorliabilityinthebalancesheetdiffersfromitstaxbase.Recognitionofdeferredtaxassetsisrestrictedtothoseinstanceswhereitisprobablethattaxableprofitwillbeavailableagainstwhichthedifferencecanbeutilised.Deferredtaxliabilitiesarerecognisedfortaxabletemporarydifferences.Suchassetsandliabilitiesarenotrecognisedifthetemporarydifferencearisesfromtheamortisationofgoodwillortheinitialrecognitionofotherassetsandliabilitiesinatransactionthatisnotabusinesscombinationandaffectsneitherthetaxprofitnortheaccountingprofit.
Theamountoftheassetorliabilityisdeterminedusingtaxratesthathavebeenenactedorsubstantiallyenactedatthebalancesheetdate,andareexpectedtoapplywhenthedeferredtaxassetsorliabilitiesaresettledorrecovered.Deferredtaxbalancesarenotdiscounted.
Deferredtaxischargedorcreditedintheincomestatementexceptwhereitrelatestoitemschargedorcreditedtoequity,inwhichcasethedeferredtaxisdealtwiththere.
BorrowingsBorrowingsareclassifiedascurrentliabilitiesunlesstheGrouphasanunconditionalrighttodefersettlementoftheliabilityforatleasttwelvemonthsafterthebalancesheetdate.Allborrowingcostsarerecognisedintheincomestatementintheperiodinwhichtheyareincurred.
ProvisionsProvisionsaremadewhentheGrouphasapresentobligationasaresultofpastevents,itismorelikelythannotthatanoutflowofeconomicbenefitswillberequiredtosettletheobligation,andtheamountcanbereliablyestimated.Provisionsarediscountedtopresentvaluewheretheimpactissignificant,usingadiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheobligation.
Notes to the Group Financial Statements continued
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29
2. Segmental analysis
ThestructureandmanagementoftheGroupisonageographicalbasis,andthisistheprimarysegment.Informationaboutthesesegmentsispresentedbelow:
Yearended30September2008
UK USA Eliminations Consolidated £’000 £’000 £’000 £’000
Revenue
Externalsales 1,916 207 - 2,123
Inter-segmentsales 58 - (58) -
Total revenue 1,974 207 (58) 2,123
Segmentresult (108) (1,194) - (1,302)
Unallocatedexpenses (288)
Operating profit (1,590) Financeincome 37
Financecosts (187)
Profit before tax (1,740) Taxation 37
Profit after tax (1,703) UK USA Corporate Eliminations Consolidated £’000 £’000 £’000 £’000 £’000
Balance sheet
Assets 1,307 752 4,839 (3,935) 2,963
Liabilities 730 3,760 1,073 (3,935) 1,628
Netassets/(liabilities) 577 (3,008) 3,766 - 1,335
UK USA Corporate Consolidated £’000 £’000 £’000 £’000
Other information
Costincurredtoacquireassets 73 50 - 123
Depreciationandamortisation 334 166 - 500
Other significant non-cash expenses
Share-basedpayments 19 - 23 42
Intercompanymanagementcharges 117 134 (251) -
TheGroupcurrentlyhasasingleclassofbusiness,sonosecondaryanalysisispresented.
0820Annual Report
3. Operating profit
Thisisstatedaftercharging:
2008 2007 £’000 £’000
Depreciationoftangiblefixedassets 497 473
Impairmentofintangiblefixedassets 3 2
Auditor’sremuneration
feespayabletotheCompany’scurrentauditorfor
theauditoftheCompany’s2008annualaccounts 12 -
feespayabletotheCompany’spreviousauditorfor
theauditoftheCompany’s2007annualaccounts 4 22
otherservices 1 8
Costofinventoryrecognisedasanexpense 282 371
Researchanddevelopment 151 279
Operatingleaserentals
plantandmachinery 19 20
property 184 189
Shareoptionexpense 50 59
4. Finance income
2008 2007 £’000 £’000
Interestonbankdeposits 37 31
5. Finance costs
2008 2007 £’000 £’000
Interestonloans 78 -
Interestonfinanceleases 29 25
Financechargesoncombinedinstruments 79 -
Otherinterestpayable 1 -
187 25
Notes to the Group Financial Statements continued
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31
6. Employees
Theaveragenumberofemployees,includingexecutivedirectorsbutnotincludingnon-executivedirectors,duringtheyearcomprised:
2008 2007 Number Number
Technical 9 8
Production 13 13
Salesandmarketing 5 6
Managementandadmin 10 10
37 37
Staffcosts,includingexecutiveandnon-executivedirectors,duringtheyearamountedto:
2008 2007 £’000 £’000
Wagesandsalaries 1,467 1,632
Socialsecuritycosts 148 136
Shareoptionexpense 50 59
1,665 1,827
Theamountsreceivedbyeachdirectorduringtheyearwasasfollows:
2008 £’000
JimMurray-Smith(ChiefExecutive) ToApril2008 Salary 78
Carallowance 6
Severance 30
DrGrahamHine(ChiefExecutive) FromJun2008 Salary 40
Carallowance 3
DrYuriZhuk(TechnicalDirector) Salary 68
Carallowance 9
PeterDavenport(FinanceDirector) Salary 60
RobertGoddard(Non-ExecutiveChairman) FromDec2007 Fees 44
DavidMott(Non-ExecutiveDirector) Fees 12
HughSmith(Non-ExecutiveDirector) Salary 12
WilliamZakroff(Non-ExecutiveDirector) Fees 12
Total directors’ remuneration 374
Nobonuseswerepaidtodirectorsduringtheyear.
TheremunerationpaidtoRobertGoddardincluded£19,225inrespectofadditionaltimeworkedbetweenAprilandtheendofJune2008followingtheresignationofJimMurray-Smith.Forthesamereason,OxfordCapitalPartners(onbehalfofDavidMott)andHughSmithwereawarded166,667and233,333fullypaidordinarysharesrespectively(seenote16).
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7. Taxation
2008 2007 £’000 £’000
UKcorporationtaxonthelossfortheyear - -
R&Dtaxcredit 36 26
AdjustmentinrespectofprioryearR&Dtaxcredits 1 (2)
37 24
TheGrouphasunutilisedtaxlossesintheUKofapproximately£6.0m(2007:£4.6m).
8. Earnings per ordinary share
2008 2007 £’000 £’000
Lossonordinaryactivitiesaftertax (1,703) (1,831)
Basicearningsperordinaryshare
Weightedaveragenumberofordinarysharesinissue 157,433,902 146,742,236
Earningspershare (1.1)p (1.2)p
Fullydilutedearningsperordinaryshare
Numberofordinarysharesinissue 189,642,236 146,742,236
Outstandingshareoptions 24,308,332 14,370,832
Convertibleloan 5,000,000 -
Total 218,950,568 161,113,068
Earningspershare (0.8)p (1.1)p
9. Goodwill
£’000
Costat1October2007and30September2008 69
Netbookvalueat1October2007and30September2008 69
GoodwillrelatestotheacquisitionofIsleHardideLimitedbyHardideCoatingsLimited.
10. Intangible assets
£’000
Costat1October2007and30September2008 9
Netbookvalueat1October2007 7
Impairmentcharge 3
Netbookvalueat30September2008 4
Notes to the Group Financial Statements continued
32
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33
11. Property, plant and equipment
Leasehold Plant,vehicles Computer buildings andfixtures equipment Total £’000 £’000 £’000 £’000
Costat1October2007 191 2,618 153 2,962
Additions 29 92 6 127
Exchangedifferences 1 102 8 111
Cost at 30 September 2008 221 2,812 167 3,200
Depreciationat1October2007 96 1,125 80 1,301
Providedintheyear 20 448 29 497
Exchangedifferences - 29 7 36
Depreciation at 30 September 2008 116 1,602 116 1,834
Netbookvalueat1October2007 95 1,493 73 1,661
Net book value at 30 September 2008 105 1,210 51 1,366
Thenetbookvalueofplant&machineryincludes£446,000(2007:£516,000)inrespectofassetsheldunderfinanceleases.Depreciationontheseassetsamountedto£59,000(2007:£103,000).
12. Current assets
2008 2007 £’000 £’000
Inventories
Rawmaterialsandconsumables 44 88
Workinprogress - 11
44 99
Tradeandotherreceivables
Tradereceivables 263 580
Otherreceivables 62 68
325 648
Othercurrentfinancialassets
Prepayments 100 114
Accruedincome 49 24
RecoverableVAT 11 9
160 147
Cashandcashequivalents
Sterling 933 1,081
Euro - 6
USDollar 62 48
995 1,135
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13. Current liabilities
2008 2007 £’000 £’000
Tradeandotherpayables
Tradepayables 182 302
Taxationandsocialsecuritycosts 97 174
Accruals 77 36
356 512
Currentfinancialliabilitiesrelatetofinanceleases.
14. Non-current other financial liabilities
2008 2007 £’000 £’000
Financeleases 173 284
Loans 989 609
1,162 893
Allnon-currentfinancialliabilitiesaredenominatedinsterling.Theamountshownforloansisthebookvalueofthedebt.TheloanshavebeenclassifiedascombinedinstrumentsunderIAS32.Theloansarediscountedusinganappropriateinternalrateofreturn,asshownbelow.Thetablebelowshowsthetotalamountsrepayableanditsprofile.Theamountsshownunderfinanceleasesarethecapitalrepaymentsonly.
Maturityprofile: Loans Financeleases 2008 2007 2008 2007 £’000 £’000 £’000 £’000
Inoneyearorless - - 110 145
Inmorethanonebutnotmorethantwoyears 1,000 1,000 118 110
Inmorethantwobutnotmorethanfiveyears 225 - 55 173
1,225 1,000 283 428
Interestonthefinanceleasesisfixedataweightedaverageinterestrateof7.9%.
Repaymentandinterestrateinformationontheloansisasfollows:
£1,000,000 RepayableSeptember2010 Baserate+2%payablemonthly IRR22%£225,000 RepayableJune2013 Fixedrate8%payableannually IRR11%
15. Total commitments under operating leases
Landandbuildings Plant 2008 2007 2008 2007 £’000 £’000 £’000 £’000
Inoneyearorless - - 2 1
Intwotofiveyears - - 58 76
Inmorethanfiveyears 1,382 1,567 - -
1,382 1,567 60 77
Notes to the Group Financial Statements continued
34
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35
16. Share capital
2008 2007 Number Value Number Value 000 £’000 000 £’000
Authorisedordinarysharesof1peach 250,000 2,500 250,000 2,500
Allottedordinarysharesof1peach 189,642 1,896 146,742 1,467
On2June2008theCompanyissued225,0008%convertibleunsecuredloannotesof£1each,repayableinJune2013.Thenotesareconvertibleatanytimepriortorepaymentataconversionrateofoneordinaryshareper4.5pofloannote.Theseareshownaslong-termliabilitiesinthebalancesheet.
On26June2008theCompanyissued42,500,000ordinarysharesat3peach.
On21July2008,theCompanyissued233,333fullypaidordinarysharestoHughSmithand166,667fullypaidordinarysharestoOxfordCapitalPartners(onbehalfofDavidMott)inrecognitionoftheextraworkperformedbythemduringtheyear.Theseamountswerearrivedatbytakingthenumberofadditionaldaysworked,multipliedbyadiscounteddailyrate,andusingamarketpriceof3ppersharetocalculatethenumberofsharestobeawarded.
17. Analysis of changes in equity
Share Share Share-based Foreign Retained Total Capital Premium Payments Translation Earnings Equity £’000 £’000 £’000 £’000 £’000 £’000
At1October2007 1,467 3,345 450 31 (3,077) 2,216
Issueofnewshares 429 757 - - - 1,186
Employeeshareoptions - - (29) - 75 46
Combinedinstruments - - (75) - - (75)
Exchangetranslation - - 1 (336) - (335)
Lossfortheyear - - - - (1,703) (1,703)
At 30 September 2008 1,896 4,102 347 (305) (4,705) 1,335
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18. Share-based payment
Number Weightedaverage exerciseprice
Outstandingat1October2007 14,370,832 11p
Exercisableat1October2007 13,170,832 11p
Cancelledduringyear (2,798,332) 9p
Forfeitedduringyear (3,589,166) 8p
Grantedduringyear 16,324,998 3p
Outstandingat30September2008 24,308,332 5p
Exercisableat30September2008 8,333,334 9p
Ofthe14,370,832shareoptionsoutstandingat1October2007,6,037,498relatedtoemployeeshareoptionsandtheremaining8,333,334relatedtooptionsgrantedalongsideloanstotheCompany.
Oftheemployeeshareoptions3,239,166wereforfeitedandtheremaining2,798,332werecancelledbytheemployeesconcernedinfavourofnewoptions.
On26thMay2008theCompanygranteddirectorsandemployeesnewshareoptionspricedat3peach.Thesenewoptionsvestinequaltranchesoverthreeyears.Intotal16,324,998employeeshareoptionsweregrantedatthatdate,ofwhich350,000wereforfeitedbytheyearend.
Thecurrentdirectors’interestinshareoptions,allofwhicharepricedat3p,isasfollows:
Number
RobertGoddard(Chairman) 1,000,000
GrahamHine(ChiefExecutive) 6,000,000
YuriZhuk(TechnicalDirector) 1,000,000
PeterDavenport(FinanceDirector) 1,000,000
On26thJune2008,theCompanyrenegotiatedtheexistingloanarrangementbywhich8,333,334optionsweregrantedinSeptember2007withanoptionpriceof12pexpiringinSeptember2010.Theseoptionswererepricedat9pandtheexpirydateextendedtoSeptember2011.
ThefairvaluesoftheoptionsgrantedweremeasuredbytheuseofaBlack-Scholespricingmodel.Theassumptionsusedinthemodelareasfollows:Volatilityof40%;dividendyieldofnil;risk-freeinterestrateof4.4%;andexpectedlifeofoptionsof3.5years.Volatilityhasbeendeterminedwithreferencetotheweeklyclosingsharepricecomparedtothepreviousweek’sclose,betweenApril2007andMarch2008.
19. Related party transaction
HardideCoatingsLtdspent£4,709withBCBEnvironmentalManagementLtdforwastedisposal.RobertGoddardischairmanofbothHardideplc,theparentCompanyofHardideCoatingsLtd,andAWPEnvironmentalLtd,theparentcompanyofBCBEnvironmentalManagementLtd.
Notes to the Group Financial Statements continued
36
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37
20. Financial Instruments – Risk Management
Incommonwithotherbusinesses,theGroupisexposedtorisksthatarisefromitsuseoffinancialinstruments.TheGroupusesfinancialinstrumentscomprisingborrowings,cash,liquidresourcesandvariousitemssuchastradedebtorsandcreditorsthatarisedirectlyfromitsoperations.Exposuretocredit,liquidityandmarketrisksarisesinthenormalcourseoftheGroup’sbusiness.TheGroupdoesnotenterintoderivativefinancialinstruments.
Credit riskTheGroup’screditriskisprimarilyattributabletoitscreditsales.TheGrouphassignificantconcentrationofsalestoafewkeycustomers,however,sincetheultimatecustomersfortheGroup’sproductsarepredominantlyblue-chipmultinationalcompanies,theboardbelievesthatthisisnotasignificantrisk.Creditriskalsoarisesfromcashanddepositswithbanks.Theserisksarereviewedregularlybytheboard.
Liquidity riskTheGroupseekstomanagefinancialriskbyensuringsufficientliquidityisavailabletomeetforeseeableneedsandtoinvestcashassetssafelyandprofitably.TheinterestrateexposureoftheGroupasat30September2008andthematurityprofileofthecarryingvalueoftheGroup’sfinancialliabilitiesareshowninnote14.TheGroup’spolicyistoensurethatithassufficientcashtoallowittomeetitsliabilities.Theboardreceivesforecastcashflowsonamonthlybasisandusestheseasthebasisforforwardplanning.
Market riskTheGroupisexposedtotranslationandtransactionforeignexchangeriskarisingbecausetheGrouphasoperationsinmorethanonecountry.Assuch,theGroup’snetassetsarisingfromsuchoverseasoperationsareexposedtocurrencyriskresultingingainsorlossesonretranslationintosterling.ForeignexchangeriskalsoariseswhenGroupcompaniesenterintotransactionsdenominatedinacurrencyotherthantheirfunctionalcurrency.
Fair valueThedirectorsconsiderthatthefairvaluesofthefinancialinstrumentsoftheGrouparenotsignificantlydifferentfromtheirbookvalue.
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21. IFRS reconciliations
Thereconciliationsofequityasat1October2006(dateoftransitiontoIFRS)andat30September2007(dateoflastUKGAAPfinancialstatements)andthereconciliationofprofitforthatyeararebelow.
Reconciliationofequityat1October2006(dateoftransitiontoIFRS)
UKGAAP TransitiontoIFRS IFRS £‘000 £‘000 £‘000
Assets
Non-currentassets
Goodwill (10) 81 71
Intangibleassets - 9 9
Property,plant&equipment 1,753 (9) 1,744
Total non-current assets 1,743 81 1,824Currentassets
Inventories 102 - 102
Tradeandotherreceivables 340 - 340
Othercurrentfinancialassets 248 - 248
Cashandcashequivalents 1,803 - 1,803
Total current assets 2,493 - 2,493
Total assets 4,236 81 4,317
Liabilities
Currentliabilities
Tradeandotherpayables 486 - 486
Financialliabilities 98 - 98
Provisions - - -
Total current liabilities 584 - 584
Net current assets 1,909 - 1,909
Non-currentliabilities
Financialliabilities 216 - 216
Total non-current liabilities 216 - 216 Total liabilities 800 - 800
Net assets 3,436 81 3,517
Equity
Sharecapital 1,467 - 1,467
Sharepremium 3,345 - 3,345
Retainedearnings (1,387) 81 (1,306)
Share-basedpaymentsreserve - - -
Translationreserve 11 - 11
Total equity 3,436 81 3,517
Notes to the Group Financial Statements continued
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Reconciliationofequityat30September2007(dateoflastUKGAAPfinancialstatements)
UKGAAP TransitiontoIFRS IFRS £‘000 £‘000 £‘000
Assets
Non-currentassets
Goodwill 23 46 69
Intangibleassets - 7 7
Property,plant&equipment 1,668 (7) 1,661
Total non-current assets 1,691 46 1,737Currentassets
Inventories 99 - 99
Tradeandotherreceivables 648 - 648
Othercurrentfinancialassets 147 - 147
Cashandcashequivalents 1,135 - 1,135
Total current assets 2,029 - 2,029
Total assets 3,720 46 3,766
Liabilities
Currentliabilities
Tradeandotherpayables 512 - 512
Financialliabilities 145 - 145
Provisions - - -
Total current liabilities 657 - 657
Net current assets 1,372 - 1,372
Non-currentliabilities
Financialliabilities 893 - 893
Total non-current liabilities 893 - 893
Total liabilities 1,550 - 1,550
Net assets 2,170 46 2,216
Equity
Sharecapital 1,467 - 1,467
Sharepremium 3,345 - 3,345
Retainedearnings (3,123) 46 (3,077)
Share-basedpaymentsreserve 450 - 450
Translationreserve 31 - 31
Total equity 2,170 46 2,216
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21. IFRS reconciliations continued
Reconciliationoflossfortheyearended30September2007
UKGAAP TransitiontoIFRS IFRS £‘000 £‘000 £‘000
Revenue 2,470 - 2,470
CostofSales (1,180) - (1,180)
Gross Profit 1,290 - 1,290
Administrativeexpenses (2,676) - (2,676)
Depreciation (439) (36) (475)
Operating profit (1,825) (36) (1,861)
Interestincome 31 - 31
Financecosts (25) - (25)
Profit on ordinary activities before tax (1,819) (36) (1,855) Tax 24 - 24
Profit for the period (1,795) (36) (1,831)
40
Notes to the Group Financial Statements continued
0820Annual Report
Parent Company Balance Sheet
41
at 30 September 2008 Prepared in accordance with UK Generally Accepted Accounting Policies
Note 2008 2007 £’000 £’000
Assets
Non-currentassets
Investments 3 1,100 1,100
Total non-current assets 1,100 1,100
Currentassets
Tradeandotherreceivables 4 4,009 2,691
Cashandcashequivalents 830 1,037
Total current assets 4,839 3,728
Total assets 5,939 4,828
Liabilities
Currentliabilities
Tradeandotherpayables 5 84 108
Total current liabilities 84 108
Net current assets 4,755 3,620
Non-currentliabilities
Financialliabilities 6 989 609
Total non-current liabilities 989 609
Total liabilities 1,073 717
Net assets 4,866 4,111
Equity
Sharecapital 7 1,896 1,467
Sharepremium 8 4,102 3,345
Retainedearnings 8 (1,465) (1,121)
Share-basedpaymentsreserve 8 333 420
Total equity 4,866 4,111
Undersection230oftheCompaniesAct1985theCompanyhasnotincludeditsownprofitandlossaccountinthesefinancialstatements.TheparentCompany’slossfortheyearwas£416,000(2007:lossof£712,000).
Theaccompanyingnotesformanintegralpartofthesefinancialstatements.
Thefinancialstatementswereapprovedandauthorisedbytheboardon5December2008.
Graham HineDirector
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Basis of preparationTheaccountsbeenpreparedunderthehistoricalcostconventionandinaccordancewithapplicableUnitedKingdomGenerallyAcceptedAccountingPoliciesandtheCompaniesAct1985.
1. Summary of significant accounting policies
Foreign currency translationMonetaryassetsandliabilitiesdenominatedinforeigncurrenciesaretranslatedattheratesofexchangerulingatthebalancesheetdate.Transactionsinforeigncurrenciesaretranslatedattherateofexchangerulingatthedateoftransaction.Anydifferencesaredealtwiththroughtheprofitandlossaccount.
Research and developmentResearchanddevelopmentexpenditureischargedtotheprofitandlossaccountintheperiodinwhichitisincurred.
InvestmentsInvestmentsarestatedatcost.
Financial instrumentsTheGroupdoesnotenterintohedgingorspeculativederivativecontracts.TheGroupusesfinancialinstrumentsprimarilytomanageexposuresinfluctuationsinforeigncurrencyexchangeratesandinterestrates.Incomeandexpenditurearisingonfinancialinstrumentsisrecognisedontheaccrualsbasis,andcreditedorchargedtotheprofitandlossaccountinthefinancialperiodtowhichitrelates.Financialassetsarerecognisedinthebalancesheetatthelowerofcostandnetrealisablevalue.Provisionismadefordiminutioninvaluewhereappropriate.
Classification as equity or financial liabilityFinancialliabilitiesandequityinstrumentsareclassifiedaccordingtothesubstanceofthecontractualarrangementsenteredinto.Afinancialliabilityexistswherethereisacontractualobligationtodelivercashoranotherfinancialassettoanotherentity,ortoexchangefinancialassetsorfinancialliabilitiesunderpotentiallyunfavourableconditions.Inaddition,contractswhichresultintheentitydeliveringavariablenumberofitsownequityinstrumentsarefinancialliabilities.Sharescontainingsuchobligationsareclassifiedasfinancialliabilities.Financecostsandgainsorlossesrelatingtofinancialliabilitiesareincludedintheprofitandlossaccount.Thecarryingamountoftheliabilityisincreasedbythefinancecostandreducedbypaymentsmadeinrespectofthatliability.Financecostsarecalculatedsoastoproduceaconstantrateofchargeontheoutstandingliability.AnequityinstrumentisanycontractthatevidencesaresidualinterestintheassetsoftheGroup/Companyafterdeductingallofitsliabilities.Dividendsanddistributionsrelatingtoequityinstrumentsaredebiteddirectlytoreserves.
Compound instrumentsCompoundinstrumentscomprisebothaliabilityandanequitycomponent.Theelementsofacompoundinstrumentareclassifiedinaccordancewiththeircontractualprovisions.Atthedateofissue,theliabilitycomponentisrecordedatfairvalue,whichisestimatedusingtheprevailingmarketinterestrateforasimilardebtinstrumentwithouttheequityfeature.Thereafter,theliabilitycomponentisaccountedforasafinancialliabilityinaccordancewiththeaccountingpolicysetoutabove.Theresidualistheequitycomponent,whichisaccountedforasanequityinstrument.
PensionsTheGroupoperatesastakeholderpensionschemeforitsemployees,butdoesnotmakeanycontributionstoit.
Share-Based PaymentsInaccordancewithFRS20,thefairvalueofequity-settledsharepaymentsisdeterminedatthedateofgrantandisrecognisedonastraightlinebasisoverthevestingperiodbasedontheGroup’sestimateofoptionsthatwilleventuallyvest.ThefairvalueofshareoptionsismeasuredbytheBlack-Scholespricingmodel.
Notes to the Parent Company Accounts
42
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43
2. Employees
Theaveragenumberofemployees,includingexecutivedirectors,duringtheyearcomprised:
2008 2007 Number Number
Managementandadmin 4 5
Salesandmarketing 2 3
Technical 1 -
Staffcosts,includingexecutiveandnon-executivedirectors,duringtheyearamountedto:
2008 2007 £’000 £’000
Wagesandsalaries 443 395
Socialsecuritycosts 44 46
Shareoptionexpense 23 30
510 471
Detailsofindividualdirectors’remunerationareincludedinnote6totheGroupfinancialstatements.
3. Investments
£’000
Investmentsinsubsidiariesat1October2007and30September2008 1,100
At30September2008theCompanyheld100%ofthesharecapitalofthefollowingsubsidiaries:
Classofshare Amount Country Natureofbusiness
HardideCoatingsLimited Ordinary 100% UK Surfaceengineering
HardideCoatingsIncorporated Ordinary 100% USA Surfaceengineering
4. Trade and other receivables
2008 2007 £’000 £’000
AmountsowedbyGroupundertakings 3,935 2,648
Prepaymentsandaccruedincome 27 34
Taxationrecoverable 47 -
Otherdebtors - 9
4,009 2,691
OftheamountsowedbyGroupundertakings,£3,647,000isowedbyHardideCoatingsInc.TherecoverabilityofthisamountisdependentonthefutureprofitabilityofHardideCoatingsInc.ThedirectorsbelievethatHardideCoatingsIncwillmakesufficientprofitsinthefuturetobeabletorepaytheloan.
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5. Trade and other payables
2008 2007 £’000 £’000
Tradecreditors 37 62
Socialsecurityandothertaxes 12 24
Accrualsanddeferredincome 35 22
84 108
6. Financial liabilities
2008 2007 £’000 £’000
Loans 989 609
Loansarerepayableasfollows:
Inoneyearorless - -
Inmorethanonebutnotmorethantwoyears 788 609
Inmorethantwobutnotmorethanfiveyears 201 -
TheaboveloanshavebeenclassifiedascombinedinstrumentsunderFRS25.Theamountsshownhavebeendiscountedbyanappropriateinternalrateofreturn.Theactualamountsrepayableareasfollows:
2008 2007 £’000 £’000
Inmorethanonebutnotmorethantwoyears 1,000 1,000
Inmorethantwobutnotmorethanfiveyears 225 -
7. Share capital
2008 2007 Number Value Number Value 000 £’000 000 £’000
Authorisedordinarysharesof1peach 250,000 2,500 250,000 2,500
Allottedordinarysharesof1peach 189,642 1,896 146,742 1,467
Detailsofthemovementinsharecapitalcanbefoundinnote16totheGroupfinancialstatements.
8. Reserves
Share Share Other Retained Total Capital Premium Reserve Earnings Equity £’000 £’000 £’000 £’000 £’000
At1October2007 1,467 3,345 420 (1,121) 4,111
Issueofnewshares 429 757 - - 1,186
Employeeshareoptions - - (12) 36 24
Combinedinstruments - - (75) - (75)
Retainedlossfortheyear - - - (380) (380)
At30September2008 1,896 4,102 333 (1,465) 4,866
Detailsofthemovementinreservescanbefoundinnote17totheGroupfinancialstatements.
44
Notes to the Parent Company Accounts continued
0820Annual Report
9. Capital commitments
TheCompanyhadnocapitalcommitmentsat30September2008or30September2007.
10. Contingent liabilities
Therewerenocontingentliabilitiesat30September2008or30September2007.
11. Related party transaction
HardideCoatingsLtdspent£4,709withBCBEnvironmentalManagementLtdforwastedisposal.RobertGoddardischairmanofbothHardideplc,theparentCompanyofHardideCoatingsLtd,andAWPEnvironmentalLtd,theparentCompanyofBCBEnvironmentalManagementLtd.
12. Post balance sheet events
Therearenopostbalancesheetevents.
13. Cash flow statement
TheCompanyisexemptfromtherequirementtopublishacashflowstatementbecauseacashflowstatementfortheGroupisincludedintheGroupfinancialstatements.
14. Share based payment
Number Weightedaverage exerciseprice
Outstandingat1October2007 12,092,499 11p
Exercisableat1October2007 11,617,499 11p
Cancelledduringyear (703,332) 10p
Forfeitedduringyear (3,055,833) 9p
Grantedduringyear 9,269,999 3p
Outstandingat30September2008 17,603,333 6p
Exercisableat30September2008 8,333,334 9p
On26thMay2008theCompanygranteddirectorsandemployeesnewshareoptionspricedat3peach.Thesenewoptionsvestinequaltranchesoverthreeyears.Alloutstandingshareoptionsatthatdatewerecancelled.
Thecurrentdirectors’interestinshareoptions,allofwhicharepricedat3p,isasfollows:
Number
RobertGoddard(Chairman) 1,000,000
GrahamHine(ChiefExecutive) 6,000,000
YuriZhuk(TechnicalDirector) 1,000,000
PeterDavenport(FinanceDirector) 1,000,000
On26thJune2008,theCompanyrenegotiatedtheexistingloanarrangementbywhich8,333,334optionsweregrantedinSeptember2007withanoptionpriceof12pexpiringinSeptember2010.Theseoptionswererepricedat9pandtheexpirydateextendedtoSeptember2011.
ThefairvaluesoftheoptionsgrantedweremeasuredbytheuseofaBlack-Scholespricingmodel.Theassumptionsusedinthemodelareasfollows:Volatilityof40%;dividendyieldofnil;risk-freeinterestrateof4.4%;andexpectedlifeofoptionsof3.5years.
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Directors
RGoddardDMottHSmithWZakroffPDavenportGHineYZhuk
Secretary
PDavenport
Auditors
Critchleys Chartered AccountantsAvalonHouseMarchamRoadAbingdonOxonOX141UD
Bankers
The Royal Bank of ScotlandOxfordCommercialOfficeWillowCourtMinnsBusinessPark7WestWayOxfordOX20JB
Nominated Advisers and Broker
Seymour Pierce Limited20OldBaileyLondonEC4M7EN
Registrars
Capita Registrars LimitedTheRegistry34BeckenhamRoadBeckenhamKentBR34TU
Patent Agent
Harrison Goddard FooteBelgraveHallBelgraveStreetLeedsLS28DD
Registered Office
KnightsQuarter14StJohn’sLaneLondonEC1M4AJ
Head Office
Unit11WedgwoodRoadBicesterOxfordshireOX264UL
46
Directors and Advisers
0820Annual Report
Designed by Veuphonic: www.veuphonic.com
www.hardide.com
Unit 11
Wedgwood Road
Bicester
Oxfordshire
OX26 4UL
United Kingdom
Tel: +44 (0) 1869 353830
Fax: +44 (0) 1869 353831
Email: [email protected]
10811 Train Court
Houston
TX 77041
USA
Tel: +1 713 221 9020
Fax: +1 713 554 0017
Email: [email protected]