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, is pleased to announce its full year results for the year ended 30 June 2019.
Post Period End Highlights:
Commenting on the results David Banks, Non-exective Chairman of Haydale, said:
“The year under review has been a challenging one for Haydale. At management level, we have recruited a new Executive team lead by Keith Broadbent, who was promoted from COO to CEO in March 2019, and Laura Redman-Thomas, who joined as our CFO in December 2018. At an operational level, we have streamlined the business and rationalised our cost base, created a rigorous product and commodity analysis with subsequent clear focus, both inwardly and outwardly, introducing best manufacturing procedures and processes, created a Group sales force and refinanced the business with the fundraising announced in March.”
I am pleased to present Haydale Graphene Industries Plc's ("Haydale", the "Group" or the "Company") full year audited results to 30 June 2019 ("FY19").
The year under review has been a challenging one for Haydale. At management level, we have recruited a new Executive team lead by Keith Broadbent, who was promoted from COO to CEO in March 2019, and Laura Redman-Thomas, who joined as our CFO in December 2018. At an operational level, we have streamlined the business and rationalised our cost base, created a rigorous product and commodity analysis with subsequent clear focus, both inwardly and outwardly, introducing best manufacturing procedures and processes, created a Group sales force and refinanced the business with the fundraising announced in March 2019.
Total income for FY19 of £4.25 million (FY18: £4.23 million), comprised commercial revenues of £3.47 million (FY18: £3.40 million) and grant income of £0.79 million (FY18: £0.83 million).
FY19 has been a year of change and rationalisation, delivering an annualised cost base reduction of £1.6 million. During the year there was significant ($1.2 million) investment in the US blanks (SiC) business, further development of the ink market, the cost centres in the UK and Thailand were converted to profit centres and a global sales strategy was introduced.
As a result of these improvements the revenue in the second half of FY19 was up 12% on the first half of the year and 35% over the same time period in FY18 driven predominantly by the US SiC business. The FY19 £0.5 million revenue upside in the US SiC business and £0.14 million in APAC inks was offset by the £0.58 million reduction in the UK composites business where the focus was redirected towards commercial sales and well-funded, commercially viable grant related projects for longer-term growth.
The gross profit for the year was broadly in line with the prior year at £1.9 million (FY18: £2.0 million). Total administrative expenses for the year were adversely impacted by non-recurring one-off restructuring costs relating to actions by management to re-align the Group's cost base, such that total administrative expenses for the year including £0.35 million of exceptional items were £8.53 million (FY18: £8.85 million). Total comprehensive loss for the year was £7.12 million (FY18: £5.41 million), including the £2.13 million of restructuring costs and a non-cash, accounting adjustment for an impairment of intangible assets of £1.78 million. The loss from trading activities, including one-off restructuring costs, was £5.85 million (FY18: £6.02 million).
During the year under review we re-evaluated our products and services in order to align our cost base with our addressable markets. We are now using tailored advanced materials, including graphene, boron nitride and silicon carbide micro-fibre (SiC) to enable our customers to improve the quality and electrical, thermal and/or mechanical performance of their products. We have six international operating sites, with two in the UK and one in each of the USA, Thailand, South Korea and Taiwan.
In the Far East, our Thailand operation continues to grow following the successful commissioning of one of our HT60 plasma reactors for one of Thailand's leading Petro-chemical processors as well as our long-term consulting contracts. The customer intends to add value to certain by-products arising from their manufacturing process using our functionalisation capabilities.
Following a product review carried out in the year, we now have speciality inks and coatings capabilities in both the Far East and UK, covering the biomedical sensor market where commercial progress continues. Pleasingly, our inks and coatings expertise are now supplemented by piezo resistive and heating applications that are already in commercial applications across several sectors.
Our USA facility, Haydale Ceramic Technologies ("HCT"), manufactures a range of our proprietary SiC micro-fibres which add strength, toughness and anti- scratch properties to existing materials. Despite taking longer than we had expected to increase sales, HCT continues to supply against its existing long term contracts with world-wide businesses that incorporate HCT's SiC in the manufacture of their hard-edged cutting tools. As previously announced, in order to supplement the sale of our proprietary SiC "powder", we took the decision in FY18 to add value to our SiC micro-fibres by investing in our own in-house manufacturing capabilities at our US site to address a growing market in selling our own proprietary SiC cutting tools ("blanks"). The machinery is now commissioned, and we are expecting to ramp up production in the current financial year after positive feedback from our customers.
The graphene teams at our Loughborough and Ammanford sites have been developing customer solutions for resins that incorporate our functionalised graphene for the pre-preg carbon fibre market for enhanced electrical, thermal and mechanical applications following the positive work with NICHE and BAC Motors. In addition, following successful trials, the teams have developed a range of graphene enhanced elastomers that were launched post the period end at the IRC 2019 show at the KIA Oval earlier in September.
The new Graphene Engineering Innovation Centre (GEIC) opened in December 2018 at the University of Manchester, where Haydale is a Tier 1 Partner. The GEIC has installed one of our HT60 plasma reactors for graphene functionalization and is showcasing it to other partners and customers.
We continue to enhance the functionalisation performance of our reactors with further upgrades and are working on some exciting product improvement opportunities for the myriad of companies now looking at collaborating with the GEIC and its Tier-1 Graphene partners and with our other customers across the globe.
We enter FY20 with two new graphene-enhanced product lines in pre-preg and Elastomers and a focussed sales force with the industry contacts to promote them.
I foresee significant growth opportunities for Haydale with the new and adapted approach of using our global footprint as one team, with cross-selling and cross R&D focus, a re-orientation to organic growth and cost monitoring. Business development surrounding the major advances we have seen in the core skills on inks, functionalisation and dispersion of graphene, in conjunction with the new market segment of SiC, sets Haydale up for the next phase of evolution and scale up. Under the new executive team the Group has focussed its development activities on areas where is considerers there to be immediate commercial potential.
The Executives strategic review of the Group's operations in the US and UK is largely complete, and the review of the group's Far East operations is ongoing.
I would like to thank our new executive team who have worked tirelessly to address the Group's challenges in order to put in place the solid foundations required to deliver on our anticipated growth. A number of challenges remain to be addressed, and I am confident in their ability to overcome them. I would also like to thank the staff, our advisors and my fellow non-executive directors for their hard work and dedication. I would also like to thank our shareholders for their continued support.
14 October 2019
The directors present their Strategic Report for the year ended 30 June 2019
Haydale Graphene Industries Plc ("Haydale" or the "Group") is the AIM listed group that uses tailored advanced materials, including graphene, boron nitride and silicon carbide micro-fibre (SiC) to enable its customers to improve the quality and performance of their products and thereby creating additional value and market edge. The Group's vision is to be in the vanguard of nano advanced materials and dispersion to become a world leader in the creation of material change through understanding the potential of those materials through careful characterisation, and the incorporation of its bespoke and unique patented functionalisation process, as appropriate.
The Group's regulatory approved proprietary graphene-based and other speciality inks and coatings for the print and biomedical sensor markets that it has developed continue to progress commercially and have now been supplemented by offerings in piezo resistive and heating applications that are in commercial applications across several sectors. Progress in enhanced resins for the pre-preg carbon fibre market covering electrical, thermal and mechanical applications has also moved into the commercial phase.
In the USA, Haydale manufactures proprietary SiC micro-fibres and whiskers that strengthen ceramics and hard-edged cutting tools for fashioning jet engine turbine blades from solid super alloy billets. This application has now benefitted from substantial investment and moving up the value chain to produce blanks which incorporate the fibres and have helped to further strengthen the relationship with customers. Other applications including corrosion barriers for oil and gas pipelines and coatings where high scratch and wear resistant is required is another application that is addressed.
The Group has operational activities in its six chosen geographies worldwide. In summary, these are:
|Haydale subsidiary||Location||Principal activities|
|Haydale Limited||Ammanford, Wales||Ex R&D operation now producing inks and supporting master batch production for direct sales to customers and other sites in the Group. Specialist Functionalisation centre.|
|Haydale Composite Solutions Limited ("HCS")||Loughborough, England||Sale of pre-preg, and consulting services in advanced composites, elastomers and other nano materials and including test services. Its R&D involvement in grants focuses on products that could lead to commercial production.|
|Haydale Technologies (Korea) Limited ("HTK")||Seoul, South Korea||Dedicated sales servicing the fast-moving Korean, Chinese and Japanese markets.|
|Haydale Technologies (Thailand) Company Limited ("HTT")||Bangkok, Thailand||Ex R&D facility now focused on commercial applications with plasma functionalisation facilities. Services the APAC region and supporting the Far East sales teams.|
|Haydale Technologies Taiwan Ltd ("HTW")||Kaohsiung, Taiwan||Established in July 2017 as the production facility and technical centre for sales of speciality inks, initially into the biomedical sensor market.|
|Haydale Technologies, Inc. ("HTI")||South Carolina, USA||Haydale Ceramic Technologies is HTI's wholly owned operating subsidiary which produces and sells novel SiC micro fibres and whiskers, as well as ceramic blanks to the cutting tool industry.|
Background to urgent business restructure and re-alignment
The lead in to FY19 was the trading statement announcement on 13 June 2018 which explained a delay in expected sales in FY18 and the intention of Ray Gibbs to resign as CEO in order to concentrate on business development. On 7 September 2018 David Banks stepped up from Non-executive Chairman to be appointed as Interim Executive Chairman and Keith Broadbent was appointed to the main board as Chief Operating Officer. On 9 November 2018, the Company announced that the planned $1.5 million sale and leaseback of the capital tools equipment at its US facility would not be available and that the Group was considering alternative sources of finance. At the same time a £1 million reduction of annualised SG&A costs was announced as the start of a new direction of business prudence and refocus. On 21 December 2018, an announcement was made that additional working capital had been raised through a loan with the Development Bank of Wales and a new equity subscription, concurrent with a change to the board of Directors ("Board") with Laura Redman-Thomas being appointed as the new CFO and Matt Wood stepping down from that position, and Ray Gibbs and Roger Smith also resigning from their Board positions.
The Group released its interim results on 22 February 2019 which continued to show a challenge on cash and short- term revenues. A proposed placing, subscription and open offer was announced on the same day which completed on 12 March 2019, raising £5.8 million (before costs). Following the General Meeting held on 12 March 2019, Keith Broadbent was appointed as the Group's new CEO and David Banks reverted to Non-executive Chairman.
Overall the year has been one of major reorganisation and resetting commercial priorities. In summary, this has meant that over the last six months:
This reorganisation will continue throughout the new financial year as we look to opportunities to further rationalise in conjunction with entering the growth phase.
Globalisation of the Strategic Business Units
As mentioned in previous reports, the setting up of two business units in 2017 (Resins, Polymers and Composites ("RPC") and Advanced Materials (including SiC and inks) ("AMAT") delivered some limited success and growth in the business, but did not facilitate the global approach necessary to leverage the Group's geographical and technological commercial advances. Consequently, a part of this dual BU structure has been split to provide a third reporting entity, "APAC". This has created a more flexible structure which aligns with commodity or product focus on one hand insofar as SiC, Inks, Composites and Elastomers naturally have a site-based expertise, but also encourages Project Managers and Sales personnel to look to other geographical areas for potential revenue.
This change to allow greater potential of cross-selling has been supplemented and re-enforced with the formation of a global sales team with accountability across the Group; and a new VP Sales, Neil Taylor, promoted from within the business; and a new UK Sales Director, Simon Green, recruited externally. Initial success has been reported previously with commercial activities on coatings with SiC in progress in the UK, with live commercial enquiries involving pre-preg composites and graphene offerings underway in the US. The combination of the Group's ink expertise is being pooled and leveraged. This methodology is set to continue as the template for growth as the one company one team mantra takes further hold.
Sharing best practice in Operational and other business systems and practices such as Health and Safety and Quality (ISO9001) continues to gather force. This, together with more central reporting structures underway in finance, will assist in cross group communication and enhanced governance.
Progress on Core Element - Plasma functionalisation
Building on the progress from last year, the HDPlas™ functionalisation process continues to be the cornerstone of the Company's offering. Good progress has been made with several new and different key treatments enabling much more varied offerings to customers' requirements. This enables a much greater range of graphene and other nano material treatments and facilitates potential improvements in dispersal and mechanical strength, electrical conductivity, and thermal conductivity. The loaded matrix can and is being added to commercial applications such as pre-preg, compounded into polymers or elastomers, or sold as Masterbatch in many ongoing programs.
Key to the investment this year has been the research allowing ramp up technology to be much better understood and has, therefore facilitated increased commercial quantity requirements as and when required.
New applications for the plasma functionalisation process include projects developing the treatment of materials to re-life such as Carbon Black and processing larger types of components to support external surface enhancements, including greater adherence.
The focus on Marketing for graphene profiling that has served Haydale well in the past has fundamentally shifted to product marketing for product sales. Alterations to the website in the year will be further enhanced in the new financial year with an incorporation of the US and Far East offering onto a single website and presenting the one global face of Haydale.
SITE SPECIFIC PROGRESS
Loughborough, East Midlands (RPC)
In context of the overall strategic direction, the Loughborough Site has seen an emphasis on reducing cost overhead, reducing grant income in preference to commercial paid-for projects whilst maintaining the progress in relation to the further development of the main technologies. The focus continues with the application specific customer solutions which now includes composites, elastomers, inks and SiC. The incorporation of nano materials into the bespoke solutions has become a core competence.
Highlights have included the progress from the funding grant announced in October 2018 with the Niche Vehicle Network, BAC Mono and Pentaxia as part of the consortia to further develop pre-preg for tooling and automotive parts, to the showcase of the BAC Mono "R" at Goodwood Festival of Speed with the composite parts integral in the vehicle being exhibited (announced post period in July 2019). This product development of the tooling and component enhanced pre-preg could well be a steppingstone for graphene-enhanced composite body panels and tooling reaching the wider automotive industry soon. Haydale's Composites Transition Piece (CTP) was also a product of previous grant collaboration, and now endorsed by the National Grid, is another example of product development targeting commercial revenues. This, together with the enhanced portfolio and other applications coming through the same route, bodes well for future revenues and growth.
Ammanford, Wales (RPC)
Ammanford's transition from an R&D cost centre to a commercial profit centre got underway in the second half of FY19. The focus has been on ink sales initially and, to that end, we have recruited an experienced Sales Engineer from that industry. As previously announced, Haydale, in collaboration with The Welsh Centre for Printing and Coating (WCPC), has developed and refined a range of proprietary printing inks utilising functionalised graphene. This includes the development of advanced ink technology to be embedded into a range of apparel for elite athletes in training for the 2020 Olympic and Paralympic Games.
In order to further support this transition and provide a pipeline going forward, Haydale is a partner in the Smart Expertise Program funded by the Welsh Government which is designed to speed up the process required to take products from proof of concept into volume and profitable products. This involves close collaboration with our Taiwan operations whose focus is also inks.
As part of the bigger sales team led by Neil Taylor in the US, the intention is to look to sell the full portfolio of products across all SBU's including ink, composites, elastomers and SiC.
Significant progress has been made in many areas of the functionalisation process, including the ability to increase treatment levels across several materials. Examples include treatment to increase hydrophobicity, as well as increase the ability to treat low bulk density materials such as high grade FLG's (few layered graphene) and recovered carbon blacks. Additionally, Haydale is collaborating with the National Physical Laboratory for further understanding of the functionalisation process as part of an Innovate UK grant as the focus continues on real life products. Key will be the ability to continue to improve material throughput. Collaboration with our key OEM on plans to design the next generation of HDPlas™ reactors to provide the ability to meet commercial volumes in anticipation of the breakthrough driven by the increasing scope of the core and patented technology has also been a priority.
We continue to have an office in Harwell Business Park, Oxfordshire, leased from June 2018, to provide a central location for business development alongside significant potential customers operating in the aerospace and advanced materials sectors.
Greer, South Carolina (AMAT)
The US operation, Haydale Ceramic Technologies LLC ("HCT"), continues to deliver the bulk of revenues for the Group and, in FY19, achieved sales of SiC of £2.7 million (FY18: £2.11 million). During the year, it developed and extended a previously announced four-year agreement to supply SiC micro-fibre to a global group selling tooling and wear-resistant solutions. HCT renegotiated and extended the term of the agreement. This new sole supply agreement has a potential sales value of more than US$3.3 million over a now five-year term, which represented an increase of US$1.35 million in the order book at the time.
The commissioning and installation of the equipment invested in last year at $1.5 million to produce engineered SiC ceramic blanks for the cutting tool industry has been well received and qualified with major jet engine and aerospace manufacturers worldwide and the team are now working towards scaling up to commercial production quantities. There have been some initial teething issues with the ramp up, but progress is being made and the expectation of good revenue growth is still very much anticipated. The support of customers in this process has been significant as the teams work together to realise the joint opportunities.
Efforts to introduce SiC in the powder-coating anti-corrosion market have continued with revenues also expected to grow in the current financial year. This application has been the subject of a paid for commercial contract in the UK and work is underway between the US and UK sites to develop a bespoke coating process to further address this market opportunity.
HCT has a long-term sales order book for delivery of SiC and, as at 12 September 2019, stood at approximately $3.55 million ($4.22 million, 10 September 2018).
Thailand Bangkok (APAC)
HTT, our high-class facility in the prestigious Thailand Science Park in Bangkok, has progressed well in the year and is also moving into more commercial project applications, including functionalisation projects of some of the by-products of a large petrochemical processor and entering first stages of their own bespoke product sales, in particular, PATit. PATit is Haydale's software driven anti-counterfeiting device that "reads" the unique conductive transparent and opaque inks when printed onto a product label, proving the authenticity (or otherwise) of the goods. There is currently an agreement that has been signed with TKS Siampress Management Co., Ltd to use the technology in commercial applications on an exclusive basis in Thailand and one other territory to be decided by the parties. Furthermore, there is another customer working with the technology to develop a different bespoke application.
The site continues additionally to be a technical and sales support service for our Korean and Taiwan activities.
Taiwan Kaohsiung, (APAC)
HTW continues to provide graphene and other speciality inks in lower quantities, principally to leading biomedical sensor printers in the diabetes testing market. We are receiving regular repeat orders from customers, albeit still in relatively small quantities and the joint development agreement with STAR RFID. The previously announced intention to relocate to bigger premises will be dependent on the sales achieving commercial volumes and will be reviewed as part of the ongoing strategic review.
Korea Seoul (APAC)
Our sales office in Seoul remains a good access route to Chinese and Japanese markets as we continue to progress in the commercial sphere. Our sales engineer is now part of the global sales structure and this will assist revenue growth going forward. The new PATit sales opportunity described above was one that originated from this source.
FUTURE STRATEGIC DIRECTIONS
FY19 has been a transitional and challenging year for Haydale and the much-discussed potential for a commercial focus to develop a sales team and reduce overheads has been affected. This will be the fulcrum of business in FY20 and onwards. The cross selling of products: pre-preg and Inks in the US; Composite technologies in the APAC regions; and SiC in the UK and Europe, is a crucial element in this growth direction. The new global sales team that is now in place has very specific objectives to leverage this geographical reach and expertise across all the focus product groups with robust back up of the core and unique functionalisation process to underpin the drive.
Further improvements in characterisation, dispersion, capital equipment modification, material treatment levels and innovations continue as part of customer paid for process, and the concurrent development of further know-how with additional potential IP is, of course, an essential element of this new intensity, which in turn helps support more business. Examples of this were evident at the innovations in elastomers recently announced at the IRC 2019 (International Rubber Conference) where we launched a range of functionalised nanomaterials pre-dispersed in process oils for improvements in mechanical and thermal conductivity of customer's rubber products We also continue to spread this learning, expertise and best practice throughout the Group to our people.
Central to our future success is also our partnerships which have continued to be developed over the last twelve months and where we are looking to expand further. WCPC (Welsh Centre for Printing and Coating) is part of Swansea University and is fully committed through the part-funded Smart Expertise Program to support the path to commercialism. The combination of WCPC's significant expertise and equipment and Haydale's newly created commercial focus assists in expediting products to quality volume to deliver to customers' needs.
The relationship with University of Manchester's £60 million Graphene Engineering Innovation Centre ("GEIC") is similarly a major bridge in the commercialisation drive which, from June 2019, has one of our HT60 functionalisation reactors installed and commissioned. As a Tier One member of the GEIC, Haydale gains access to the materials knowledge, applications engineers and both analytical and processing equipment within the GEIC. This gives Haydale, through the GEIC's world-renowned development facilities, a quicker route to market and access to a greater reach and range of customers.
We continue to target the less regulated markets, including sporting goods, which provide potential significant short-term revenue opportunities for Haydale. An example of which has been supply during the year of graphene-enhanced masterbatch to a customer involved in the hockey and lacrosse supply industry. However, any significant sales orders are predicated on the adoption of our products and technologies by our commercial partners and customers, timing of which is outside our control. The excellent work we have done over the last nine months to focus on our core products and expertise, an example of which is our datasheets on graphene enhanced pre-pregs and elastomers, has been extremely well received by industry and our newly created sales team are following up on these new leads.
Grant Funded Projects
Grant funded projects have continued over the last twelve months with the new emphasis that only projects that lead to commercial products in the short to medium term or add significantly to the Group's knowledge bank on applications with commercial potential in defined time scales will be undertaken. The type of projects involved have included the large petrochemical customer work detailed above in Thailand but most focus has been in the UK at our Ammanford and Loughborough sites. An example of this includes the development of graphene enhanced functionalised additives for use in elastomers. This involves highly loaded nanomaterial dispersions in process oils to offer enhanced mechanical, physical, electrical and thermal properties of elastomer compounds. The technical datasheet and product information was launched at IRC in September 2019.
Other examples include a plan of work to create a graphene sensor that will be able to detect defects in composite materials during both the manufacturing process and the normal service life of a component, to improve the electrical conductivity of epoxy resin structural adhesives using functionalised nanomaterials, and a product readiness project to produce graphene enhanced composite tooling using thermal pre-preg, and graphene enhanced components using mechanically improved pre-preg.
Further work is also underway on the enhancement of the electrical pre-preg offering for EMS shielding and lightning strike, and it is anticipated this will result in another product specified for FY20.
This structured approach to development is facilitating the internal learning experiences and potential product to fit with the organic growth momentum at the centre of our strategic drive.
Management and Personnel
We have looked to make reductions in overheads this year whilst at the same time investing in the training of our staff as we continue to build organisational capability.
In September 2018, Keith Broadbent was promoted to the newly created role of the Group's Chief Operating Officer and as a director of the Company and, following the equity fundraise in March 2019, became the CEO of the Group, replacing David Banks who reverted to his previous role as Non-executive Chairman.
In December 2018, several directors decided to stand down, including Matt Wood, as part-time Finance Director, who was replaced by Laura Redman-Thomas as full-time CFO. Ray Gibbs also stepped down as a director of the Company in December 2018 and Roger Smith, NED, stepped down in January 2019.
Having discussed with our advisers and key shareholders, it is the Board's intention over the coming weeks to adopt a new EMI and Group wide share option scheme in order to incentivise, retain and recruit our staff. The new scheme will replace the Group's existing share option schemes and all options granted under the previous schemes are expected to be surrendered. Further details of the new scheme and any grants of options made will be issued in due course.
Our focus on cost savings, which started in October 2018 and continued following the Group's securing of a loan from the Development Bank of Wales in December 2018 and through the equity fund raising that completed in March 2019, has achieved annualised savings to overheads of approximately £1.6 million to date. These predominantly relate to Senior Management salary costs, consultancy costs and travel.
At the end of FY19, the Board, following extensive discussions with its advisors including its auditors, took the decision to impair the carrying value of intangible assets relating to the UK (RPC) composites business by £1.78 million. This was despite good pipeline opportunities and takes into consideration the company's current share price, its resulting market cap and the change in the composites business since its acquisition in 2014 from a predominantly grant funded sales business to a product sales business.
Patents, IP and Licensing
Haydale's critical IP remains its processing, mixing and dispersion knowledge and know-how derived from the work we have carried out in conjunction with Huntsman, together with the FDA-approved ink formulations that have been developed in the Far East.
The Group currently holds patents in the US, UK, Europe, China, Japan and Australia.
Key Performance Indicators ("KPIs")
The Group's KPIs are its financial metrics, being its revenues, gross profit margin, adjusted operating loss, cash position, total borrowings and long-term sales order book as follows:
|FY19 (£'000)||FY18 (£'000)|
|Gross profit margin||55%||59%|
|Adjusted operating loss||(4,180)||(4,880)|
|Long-term sales order book, inclusive of grants*||3,557||4,674|
* unwinding of multi-year contracts in the US of £0.8 million and timing in UK Composites £0.29 million
The Financial Review should be read in conjunction with the consolidated financial statements of the Group and the notes thereto. The consolidated financial statements are presented under International Financial Reporting Standards as adopted by the European Union and are set out on pages 35 to 78. The financial statements of the Company continue to be prepared in accordance with FRS 101 and are set out on pages 79 to 87.
Statement of Comprehensive Income
In the year under review, the Group's three principal areas of income were: Sale of SiC fibers, whiskers and blanks, Specialty Inks and graphene enhanced composites. There is a further category of grant funded turnover which will be discussed separately
The Group's total income for the year ended 30 June 2019 of £4.25 million (FY18: 4.23 million), comprised commercial revenues of £3.47 million (FY18: 3.40 million) and grant income of £0.79 million (FY18: £0.83 million). The increase in revenue from the US SiC business of £0.50 million and £0.14m increase in APAC inks was offset by a £0.58 million reduction in the UK RPC business, where the focus was redirected towards commercial sales and well-funded, commercially viable grant related projects for longer-term growth. Although revenue was flat year on year, the Group's second half income increased by 12% compared to the first half of the year and by 35% on the same period in FY18, predominantly driven by growth in the US.
The Group's gross profit, which excludes the income from grant funded projects was £1.90 million (FY18: £2.0 million) delivering a gross profit margin of 55% (FY18: 59%). The reduction in margin was primarily due to a different sales mix and a below average yield from the US operations in the first half of FY19. This was further impacted by higher than expected graphite costs in the US, and pricing strategies as the business seeks to expand the markets for its products.
The Group's adjusted operating loss before non-cash items, such as depreciation, amortization, share based payment charges, impairments, and one-off restructuring costs was a loss of £4.18 million (FY18: £4.88 million). The loss from trading, including one-off restructuring costs of £0.35 million was £5.85 million (FY18: £6.02m). The Directors consider that adjusted operating loss is a more useful measure of the Group's performance and comparative performance than loss from operations, as it excludes a non-cash accounting adjustment for the impairment of intangible assets.
As stated in the Strategic Report, at the year end, the Board, following extensive discussions with its advisors including its auditors, took the decision to impair the carrying value of intangible assets relating to the UK (RPC) composites business by £1.78 million. This was despite good pipeline opportunities and takes into consideration the current share price, the resulting market cap and the change in the composites business since its acquisition in 2014 from a predominantly grant funded sales business to a product sales business.
During the year, we invested significantly in the US blanks business, realigned and refocused resource throughout the Group, particularly reducing the cost base in the UK composites business. R&D was redirected towards commercially viable products expected to deliver future strategic growth. Overall third-party R&D spend for the year was £0.76 million (FY18: £1.05 million), of which £0.49 million was expensed during the year (FY18: £0.88 million), with the balance of £0.22 million being capitalized, (FY18: £0.18 million).
The Group's adjusted administrative costs of £6.87 million (FY18: £7.71 million) exclude non-cash items of depreciation, amortization, share based payment charges, depreciation and amortization as well as one-off restructuring costs of £0.35 million to facilitate strategic change and future cost base reductions. Total administrative expenses for the year were £8.53 million (FY18: £8.85 million).
In the year the cost base was realigned achieving annualized savings of approximately £1.6 million of which £0.50 million was realized in the second half of FY19. Overall, the loss before tax for the year was £7.76 million (FY18: £6.12 million) and included non-cash items of £3.10 million and one-off costs of £0.35 million. Non-cash items included impairment of intangible assets, amortization, depreciation and share based payment charges.
Total comprehensive loss for the year was £7.12 million (FY18: £5.41 million), including the £1.78 million non-cash charge for the impairment of intangible assets and one-off restructuring costs of £0.35 million.
At the year end, the Group's contracted order book stood at £3.56 million (FY18: £4.67 million) and, since the year end, additional long-term orders have been secured resulting in an order book as at 10 September 2019 of £3.55 million to be delivered over the coming years.
The loss per share for the year reduced to £0.06 (FY18: £0.21 loss).
Statement of Financial Position and Cashflows
As at 30 June 2019, net assets amounted to £11.25 million (2018: £12.54 million), including cash balances of £4.69 million (2018: £5.09 million). Other current assets increased to £3.13 million at the year-end (2018: £2.56 million), and current liabilities increased to £3.12 million as at 30 June 2019 (2018: £2.51 million). Net cash outflow from operating activities, before working capital movements for the year was £4.59 million (2018: £4.83 million). The principal contributing factors being the adjusted operating loss of £4.18 million (2018: £4.88 million) plus the one-off restructuring costs of £0.35 million. Capital expenditure of £1.2 million (FY18: £0.72 million) was predominantly for the US blanks equipment which utilized a significant portion of cash during the year.
Capital Structure and Funding
As at 30 June 2019, the Company had 317,723,848 ordinary shares in issue (2018: 27,328,773). During the year, the Company issued 290,395,075 new ordinary shares in connection with the Company's placing and offer for subscription which raised £5.81 million (before expenses) and was completed on 13 March 2019. No options were exercised into ordinary shares during the year (FY18: no options were exercised).
The Group repaid borrowings of £0.5 million during the year (FY18: £0.45 million), principally in relation to the Group's US borrowing facilities which are secured on the Group's US based tangible assets. A new loan was secured on 19TH December 2018 with the Welsh Development Bank for £0.75 million. The net result left Haydale's financing costs in line with the previous year at £0.12 million (FY18: £0.10 million). The Group's total borrowings at the year-end were £1.25 million (2018: £0.90 million), £0.58 million of which was in the UK and the balance held by the Group's US subsidiaries.
Haydale's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide return to equity holders of the Company and benefits to other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group manages this objective through tight control of its cash resources to meet its forecast future cash requirements.
30 June 2019
30 June 2018
|Cost of sales||(1,567)||(1,403)|
|Other operating income||785||831|
|Adjusted Administrative expenses||(6,865)||(7,711)|
|Adjusted operating loss||(4,180)||(4,880)|
|Adjusting administrative items:|
|Share based payment expense||(200)||(291)|
|Depreciation and amortisation||(1,118)||(851)|
|Total trading administrative expenses||(8,533)||(8,853)|
|LOSS FROM TRADING||(5,848)||(6,022)|
|Total administrative expenses||(10,317)||(8,853)|
|LOSS FROM OPERATIONS||(7,632)||(6,022)|
|LOSS BEFORE TAXATION||6||(7,755)||(6,117)|
|LOSS FOR THE YEAR FROM CONTINUING OPERATIONS||(7,185)||(5,267)|
|Other comprehensive income:|
|Items that may be reclassified to profit or loss:|
|Exchange differences on translation of foreign operations||60||(47)|
|Items that will not be reclassified to profit or loss:|
|Remeasurements of defined benefit pension schemes||2||(99)|
|TOTAL COMPREHENSIVE LOSS FOR THE YEAR FROM CONTINUING OPERATIONS||(7,123)||(5,413)|
|Loss for the year attributable to:|
|Owners of the parent||(7,185)||(5,267)|
|Total comprehensive loss attributable to:|
|Owners of the parent||(7,123)||(5,413)|
|Loss per share attributable to owners of the Parent|
|Company Registration No. 07228939||Note||30 June|
|Property, plant and equipment||10||5,556||5,061|
|Deferred tax asset||-||-|
|Cash and bank balances||4,688||5,092|
|Trade and other payables||13||2,056||2,172|
|TOTAL NET ASSETS||11,251||12,541|
|Capital and reserves attributable to equity holders of the parent|
|Share premium account||12||27,764||27,539|
|Share-based payment reserve||828||1,298|
|Foreign exchange reserve||(100)||(160)|
|At 1 July 2017||392||18,936||1,007||(113)||(11,317)||8,905|
|Comprehensive Loss for the year|
|Loss for the year||-||-||-||-||(5,267)||(5,267)|
|Other comprehensive loss||(47)||(99)||(146)|
|Total Comprehensive loss||392||18,936||1,007||(160)||(16,683)||3,492|
|Contributions by and distributions to owners|
|Recognition of share-based payments||-||-||291||-||-||291|
|Issue of ordinary share capital||155||9,123||-||-||-||9,278|
|Transaction costs in respect of share issues||-||(520)||-||-||-||(520)|
|At 30 June 2018||547||27,539||1,298||(160)||(16,683)||12,541|
|Comprehensive Loss for the year|
|Loss for the year||(7,185)||(7,185)|
|Other comprehensive loss||-||-||-||60||2||62|
|Total comprehensive loss||547||27,539||1,298||(100)||(23,866)||5,418|
|Contributions by and distributions to owners|
|Recognition of share-based payments||-||-||200||-||-||200|
|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 2019||6,354||27,764||828||(100)||(23,595)||11,251|
|Cash flow from operating activities|
|Loss before taxation||(7,755)||(6,117)|
|Amortisation of intangible assets||9||2,007||149|
|Loss on disposal of intangible assets||-||75|
|Depreciation of property, plant and equipment||10||895||702|
|Loss/(Profit) on disposal of property, plant and equipment||16||(60)|
|Share-based payment charge||200||291|
|Pension plan contributions||(118)||-|
|Pension - net interest expense||42||37|
|Operating cash flow before working capital changes||(4,590)||(4,828)|
|(Increase)/Decrease in inventories||(401)||190|
|Decrease in trade and other receivables||200||266|
|Increase in payables and deferred income||13||159|
|Cash used in operations||(4,778)||(4,213)|
|Income tax received||76||269|
|Net cash used in operating activities||(4,702)||(3,944)|
|Cash flow used in investing activities|
|Purchase of property, plant and equipment||(1,205)||(723)|
|Purchase of Intangible Assets||(267)||(175)|
|Proceeds from disposal of property, plant and equipment||-||83|
|Acquisition of subsidiary - deferred consideration||-||(444)|
|Net cash used in investing activities||(1,472)||(1,259)|
|Cash flow used in financing activities|
|Proceeds from issue of share capital (net of share issue costs)||5,634||8,757|
|New bank loans raised||750||-|
|Repayments of borrowings||(500)||(446)|
|Net cash flow from financing activities||5,761||8,216|
|Effects of exchange rates changes||9||(12)|
|Net (decrease) / increase in cash and cash equivalents||(404)||3,001|
|Cash and cash equivalents at beginning of the financial year||5,092||2,091|
|Cash and cash equivalents at end of the financial year||4,688||5,092|
Page last updated: 15 October 2019
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