The information contained within this announcement is deemed by the Group to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 (‘MAR’). Upon the publication of this announcement via a Regulatory Information Service (‘RIS’), this inside information is now considered to be in the public domain.
Haydale (AIM: HAYD), the global advanced materials group, announces its unaudited interim results for the six months ended 31 December 2019 (the ‘Period’ or ‘H1 2020’).
- Group Revenues of £1.35 million for the Period, 17% down on H1 2019;
- Adjusted administrative expenses fell by 17% with a saving of £0.68 million on the prior year half year;
- Adjusted operating loss for the Period reduced by 22% (H1 2020 £2.1 million vs H1 2019 £2.7 million);
- Cash at Period end of £2.70 million (30 June 2019: £4.69 million); and
- New share subscription of £0.45 million at approximately a 29% premium to closing mid-market price.
- US blanks production now at commercial levels after some earlier teething issues;
- Decision taken to close loss-making Taiwan manufacturing facility and transfer production to both our UK and Thailand operations, expected to result in a reduction in turnover but improved EBITDA for H2 2020;
- Rightsizing of the Group’s cost base has continued, with a reduction of £0.68 million adjusted administrative expenses in the Period.
Commenting on the interim results, Keith Broadbent, Chief Executive Officer of Haydale, said:Whilst both internal and external factors have adversely impacted our short-term revenues, the Directors remain committed to delivering on the commercial potential of our stable of world leading technologies. We are making significant progress, in collaboration with a number of international partners, towards converting state of art science into everyday applications that will positively impact our customers’ businesses. Our proprietary technology and our exceptional ability to functionalise nano materials continues to give us confidence in the longer-term prospects of the Group.
Chief Executive’s Report
The Group experienced a softer start to the financial year than anticipated and, in particular, sales of silicon carbide (“SiC”) whiskers and blends in H1 2020 were disappointing and reflected wider issues experienced within the US aerospace and petrochemical sectors. Sales within the Group’s other regions were below expectations but showed improvement year on year which we expect to continue, albeit at a more gradual pace than originally forecast.
As previously announced the Board has decided to close the Group’s loss-making manufacturing facility in Taiwan and move capacity to its APAC Knowledge Centre in Bangkok and its manufacturing facility in Ammanford. This shift will be completed in H2 2020.
Notwithstanding that revenues for the Period were down on the prior year period (H1 2020 £1.35 million vs H1 2019 £1.64 million) the Group’s adjusted operating loss showed a 24% reduction (H1 2020 £2.1 million vs H1 2019 £2.7 million). The anticipated costs savings of £0.68 million have been realised in the H1 2020 results and, although further cost reduction measures are being implemented, the Directors do not envisage that these will have a similar impact as those achieved to date.
The strategic focus on SiC and the related cutting tools (“blanks”), functionalised inks and graphene composites remains at the heart of the operational purpose and, within this plan, the Directors will continue to exercise cost control as a necessity and cost reduction where it does not adversely impact operational priorities.
The Board welcomed Mark Chapman as the Group’s Chief Financial Officer on 22 November 2019.
The Board took the decision to close the loss-making Taiwan manufacturing facility and move production to the Ammanford site and the Thailand Knowledge centre. Notwithstanding the previous investment in the Taiwan operation, the Directors could see no realistic prospect of that business unit moving into profitability in the medium term. As noted in the Group’s 2019 Annual Report and Accounts, the unit was ‘receiving regular repeat orders, albeit still in relatively small quantities.’ During H1 2020 we saw no expansion of these orders and, after a reassessment of the prognosis for this operation, the decision was taken to close the facility. The Directors expect the closure and reallocation of resources to be completed by the end of June 2020.
Our Asia Pacific (“APAC”) hub in Thailand continued to make good progress in the Period towards commercialising Haydale’s proprietary technology in conjunction with a number of key national business champions. The APAC hub has also acted as a springboard into other APAC countries including China and the Group is currently considering a number of opportunities within that region that will allow for wider exploitation of its PATit (non-visualised graphene security code) ink technology. The knowledge centre in Thailand is supported in realising these prospects by our sales engineer in Seoul. Although revenue growth there has been more modest than anticipated, the Directors expect the position to improve in H2 2020. Notwithstanding this, the Group continues to monitor its prospects in the APAC region as part of its on-going strategic review.
Revenue at our US SiC manufacturing facility has lagged our initial forecasts as the business was subject to the issues that have been widely reported in the US aerospace and petrochemical sectors. Sales of the Group’s SiC whisker and blends showed a like-for-like fall in H1 2020 of 43% which, given the historic predictability of this revenue stream, has been frustrating. Whilst we anticipate that inventory levels will not fully rebound in H2 2020, we do foresee a stronger sales pattern emerging as customers have adjusted their stock holdings and are now resuming a steadier purchasing pattern. The Group has sought to counteract this subdued activity by looking for alternative uses for its SiC and has recently completed the successful trial of a new barrier coating with a major utility business.
To compound this wider industry slowdown, the US facility also encountered teething problems with its blanks line as it scaled up to commercial production levels. We are pleased to report that these issues have now been resolved and the unit is now shipping to those customers that pre-approved the blanks in 2019. Subsequent to the year-end, strong traction with new customers in the US and APAC region has given the Directors the confidence to move the US facility to a double shift pattern from early February 2020. The growth in the blanks business should allow the Group to make a solid return on its investment and, despite the short delays, the forecast payback period is expected to be less than our initial projection. We anticipate that the blanks production will contribute to a higher utilisation of the wider manufacturing capacity at the US facility and, as we move up the value chain, will lead to higher value sales than the historic SiC operation.
The UK division has made meaningful progress towards commercialising its proprietary technology and to delivering on some of the previously announced collaborations. It is rewarding to see the BAC Mono car moving to the commercial production stages with the use of graphene enhanced composites for a number of the body panels. In line with the refocus towards revenue generation, the Group has formalised the technical specifications of six new products which it is confident can deliver the promoted material enhancement and can be manufactured to an industrial scale. This important step forward has attracted interest from some significant global businesses in the aerospace and automotive sectors who can now readily understand the level of electrical, thermal and mechanical enhancements achievable and the potential benefit that our functionalised nano materials could offer them.
Excluding grant income, the UK division has shown an increase in like-for-like sales but, due to the longer than anticipated lead times, it has fallen short of its original forecast for H1 2020. We expect the business to improve in H2 2020 but, unless some of the significant pipeline opportunities crystallise ahead of schedule, we do not expect the business to recoup the shortfall seen to date by the end of the current financial year.
Grant income remains on target, although we continue to take a more critical approach to accepting new proposals and expect this revenue stream to decline marginally as commercial projects increasingly take priority. However, to the extent that grant funded research aligns with our commitment to the continuous improvement in the capabilities of our plasma reactors and related processes, then these projects remain an important element of our business.
As previously announced, our global sales team was further strengthened in H1 2020 with the addition of UK sales expertise both in the inks and composites sectors. The enlarged team is already delivering positive results with a strong pipeline of potentially profitable opportunities being actively pursued. It has been rewarding to see that closer collaboration fostered between the regional teams has, amongst other accomplishments, led to the successful phase one trial of a US coatings solution in the EMEA region. As we further capitalise on our world leading nanomaterial expertise and technological know-how, we foresee the need to further invest in our global sales team.
Unaudited Financial Results
The Group’s recognised commercial income in the Period of £1.35 million (H1 2019 £1.64 million). Of this, £0.94 million (H1 2019: £1.28 million) derived from the US with the sales of SiC nanomaterials and blanks with the balance being sales of functionalised nanomaterials for speciality inks and composites from the UK and APAC region. The Company did not sell any plasma reactors in the Period.
During the past year, management has concentrated on reducing costs across all areas of the Group. This focus has borne fruit with total administrative expenses being reduced by £0.9 million, equivalent to 19% (H1 2020 £3.8 million vs H1 2019 £4.7 million) and adjusted administrative expenses (excluding share based payments, restructuring costs and depreciation/amortisation) by £0.7 million or 17% (H1 2020 £3.8 million vs H1 2019 £4.7 million). This has been achieved notwithstanding the investment in further sales resources as Haydale transitions from an R&D focused operation to one delivering a commercially viable product range.
The Group’s adjusted operating loss for H1 2020 reduced by 22% (H1 2020 £2.1 million vs H1 2019 £2.7 million) and the Loss before taxation was £2.7 million compared to £3.5 million in H1 2019. Following completion of the capital investment in the US blanks production in FY 2019, capital expenditure in H1 2020 shrunk to £0.2 million (H1 2019: £1.0 million) and capex is forecast to remain similarly restrained through H2 2020.
The Group’s net assets at 31 December 2019 were £9.06 million (31 December 2018: £9.26 million). The Group’s borrowings reduced by £0.54 million during the Period to £0.70 million at the Period end (30 June 2019: £1.25 million). Cash at the Period end was £2.7 million (30 June 2019: £4.7 million), including the £0.45 million of new equity funds received in November 2019. The reduction in cash balances during the Period of £2.0 million (H1 2019: £4.1 million) showed a significant reduction in cash burn compared with the prior period notwithstanding the reduced levels of capital investment. The reduction was broadly made up of £2.1 million of operational losses, £0.4 million of investment in working capital, £0.2 million of capital expenditure and the balance being repayments of borrowings offset with cash inflows of £0.44 million from R&D tax credits and £0.45 million from the equity subscriptions. We are expecting operating losses to reduce and the investment in inventory, principally in the US, to unwind in H2 2020 thus reducing the rate of cash burn.
The Company raised £0.45 million via the issue of 22,500,000 new ordinary shares in November 2019 at a price of £0.02 each (the “Subscription”), representing a premium of approximately 29% to the closing mid-market price of the Company’s shares immediately before the Subscription. As at 31 December 2019, and at the date of this announcement, the Company had 340,223,850 ordinary shares in issue.
In November 2019, Mark Chapman was appointed to the role of the Group’s CFO, replacing Laura Redman-Thomas who left the Company. On behalf of the Board I would like to thank Laura for her service to the Company.
The Directors remain committed to delivering the strategic plan that was set out in early 2019. The commercial sales of functionalised inks and graphene enhanced composites remain a priority alongside capturing the economic upside of our investment in the more mature US SiC and blanks operation. We look ahead to H2 2020 showing a more robust turnaround in sales and a reduced operating loss compared to H2 2019 and on a full year-on-year basis. Cost control remains a focus, but the Directors recognise that investment in further resource will be required to drive sales of the new product lines. Therefore, the level of overall cost reduction will reduce within the wider rebalancing towards a structure geared to achieving commercial success.
Chief Executive Officer26th February 2020
31 Dec 2019
31 Dec 2018
30 Jun 2019
|Cost of sales||(509)||(758)||(1,567)|
|Other operating income||320||377||785|
|Adjusted Administrative expenses||(3,268)||(3,951)||(6,865)|
|Adjusted operating loss||(2,110)||(2,697)||(4,180)|
|Adjusting administrative items:|
|Share based payment expense||142||(147)||(200)|
|Depreciation and amortisation||(539)||(591)||(1,118)|
|Total trading administrative expenses||(3,788)||(4,689)||(8,533)|
|LOSS FROM TRADING||(2,630)||(3,435)||(5,848)|
|Total administrative expenses||(3,788)||(4,689)||(10,317)|
|LOSS FROM OPERATIONS||(2,630)||(3,435)||(7,632)|
|LOSS BEFORE TAXATION||(2,724)||(3,471)||(7,755)|
|LOSS FOR THE YEAR FROM CONTINUING OPERATIONS||(2,565)||(3,328)||(7,185)|
|Other comprehensive income:|
|Items that may be reclassified to profit or loss:|
|Exchange differences on translation of foreign operations||(99)||5||60|
|Items that will not be reclassified to profit or loss:|
|Remeasurements of defined benefit pension schemes||174||(109)||2|
|TOTAL COMPREHENSIVE LOSS FOR THE YEAR FROM CONTINUING OPERATIONS||(2,490)||(3,432)||(7,123)|
|Loss for the year attributable to:|
|Owners of the parent|
|Basic (£) and Diluted (£)||2||(0.01)||(0.13)||(0.06)|
31 Dec 2019
31 Dec 2018
30 June 2019
|Property, plant and equipment||4,815||5,751||5,556|
|Deferred tax asset||-||680||-|
|Cash and bank balances||2,700||961||4,688|
|Trade and other payables||1,852||2,197||2,056|
|TOTAL NET ASSETS||9,055||9,256||11,251|
|Capital and reserves attributable to equity holders of the parent|
|Share premium account||27,764||27,539||27,764|
|Share-based payment reserve||686||1,445||828|
|Foreign exchange reserve||(199)||(155)||(100)|
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
For the six months ended 31 December 2019
31 Dec 2019
31 Dec 2018
30 June 2019
|Cash flow from operating activities|
|Loss before taxation||(2,724)||(3,471)||(7,755)|
|Amortisation of intangible assets||68||180||2,007|
|Depreciation of property, plant and equipment||471||411||895|
|Share-based payment charge||(142)||147||200|
|Loss/(Profit) on disposal of property, plant and equipment||123||-||16|
|Pension plan contributions||-||(120)||(118)|
|Pension - net interest expense||22||19||42|
|Operating cash flow before working capital changes||(2,088)||(2,798)||(4,590)|
|(Increase) in inventories||(435)||(233)||(401)|
|Decrease / (increase) in trade and other receivables||245||(108)||200|
|(Decreasde) / increase in payables and deferred income||(240)||112||13|
|Cash used in operations||(2,518)||(3,027)||(4,778)|
|Income tax received||846||76||76|
|Net cash used in operating activities||(1,672)||(2,951)||(4,702)|
|Cash flow used in investing activities|
|Purchase of property, plant and equipment||(28)||(964)||(1,205)|
|Capitalisation of intangible assets||(121)||-||(267)|
|Net cash used in investing activities||(149)||(964)||(1,472)|
|Cash flow used in financing activities|
|Proceeds from issue of share capital (net of share issue costs)||436||-||5,634|
|New bank loans raised||-||-||750|
|Repayments of borrowings||(545)||(149)||(500)|
|Net cash flow from financing activities||(203)||(185)||5,761|
|Effects of exchange rates changes||36||(31)||9|
|Net (decrease) in cash and cash equivalents||(1,988)||(4,131)||(404)|
|Cash and cash equivalents at beginning of the financial year||4,688||5,092||5,092|
|Cash and cash equivalents at end of the financial year||2,700||961||4,688|
|At 1 July 2018||547||27,539||1,298||(160)||(16,683)||12,541|
|Total comprehensive loss for the period||-||-||-||5||(3,437)||(3,432)|
|Recognition of share-based payments||-||-||147||-||-||147|
|At 31 December 2018||547||27,539||1,445||(155)||(20,120)||9,256|
|Total comprehensive Loss for the period||-||-||-||55||(3,746)||(3,691)|
|Recognition of share-based payments||-||-||53||-||-||53|
|Share based payment charges – lapsed options||-||-||(670)||-||670||-|
|Issue of ordinary share capital||5,807||225||-||-||-||6,032|
|Transaction costs in respect of share issues||-||-||-||-||(399)||(399)|
|At 30 June 2018||6,354||27,764||828||(100)||(23,595)||11,251|
|Total comprehensive loss for the period||-||-||-||(99)||(2,391)||(2,490)|
|Recognition of share-based payments||-||-||(142)||-||-||(142)|
|Issue of ordinary share capital||450||-||-||-||-||450|
|Transaction costs in respect of share issues||-||-||-||-||(14)||(14)|
|At 31 December 2019||6,804||27,764||686||(199)||(26,000)||9,055|
Page last updated: 27 February 2020