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UPDATE - Hardide PLC's record revenues justify investment in capacity

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Hardide (LON:HDD), the provider of advanced surface coating technology, has moved back into the black.

Results for the year to 30 September revealed a profit before tax of £110,000, compared to a loss of £902,000. Prior to Hardide's upbeat September trading update, analysts covering the stock had expected a loss of around £300,000.

Revenue performance was also better than the market had been expecting, with the top line improving to £3.0mln from £2.4mln the year before; market consensus was for revenue of £2.8mln.

The group said the revenue performance reflects a return to order levels from a major customer that are more in keeping with that customer's long-term order history, but also increasing demand from other existing customers and new accounts.

Cash improved to £3.47mln from £1.04mln a year earlier, largely thanks to £2.5mln raised by a placing of shares in August.

Those funds are earmarked for an investment in increased capacity to meet future demand. The company said that since the end of the reporting period, the installed capacity in the UK has increased by almost 50%.

Further investment in capacity has been budgeted for the current financial year.

A major share price catalyst for the group will be the successful completion of aerospace test and approval programmes with Airbus and AgustaWestland, and Hardide said these tests continue to progress positively.

The Airbus testing programme, in particular, has dragged on for a considerable time but is now in the final stages before qualification, the company revealed.

"The board is confident that the group is in a strong financial and operational position to continue the growth that has been achieved this year. That same strong financial position and growing demand merits the plan to reinstate production in North America," said Robert Goddard, chairman of Hardide.

Speaking to Proactive Investors, Hardide chief executive Philip Kirkham said the company is making good progress in its strategic aim of broadening its customer base.

“We’ve seen a 30% increase in customers, while the GE [General Electric] contract has been useful in diversifying our customer base beyond oil & gas companies,” Kirkham said.

Around two years ago the company recruited a business development manager in North America and this decision is beginning to bear fruit.

“These things take time, but the interest is growing,” Kirkham said. “What we’ve found is that US customers are saying there is more business there for us if we open up a US facility. No one likes dealing with export paperwork, plus it will reduce lead time and simplify logistics.”

Planning for a new production facility in North America is at an advanced stage, the company revealed.

Sales to North America fell back slightly to £0.55mln from £0.69mln the year before, but order intake from this market increased by 28% compared with the previous year. Hardide said the main reason for this discrepancy was the phasing of orders.

The company said the improved trading performance has been maintained in the new financial year.

“We’re working seven days a week,” Kirkham told Proactive.

“We are conscious of uncertainties in the global economic outlook, the impact of that on oil prices and the possible knock-on effect on exploration and production investment and thus on demand for our oil and gas industry coatings. Whilst we maintain close contact with customers in this regard and so far we have had no indications of any softening of demand for our services, we are not complacent,” the company told investors.

Shares in Hardide rose 4.8% to 1.73p in morning trading.

Broker finnCap said full-year results were better than expected, with a particularly pleasing final quarter trading.

“The group achieved operating breakeven point and a progressive improvement in gross margins. New capacity has been installed in Bicester and is now operational. The group has made good progress with a number of new customers,” it added.

The broker has nudged up its forecasts and maintained its positive outlook and 2.1p price target.

Quick facts: Hardide Plc

Price: 75 GBX

AIM:HDD
Market: AIM
Market Cap: £36.86 m
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