Page 16 - Hardide-Annual-Report-2021
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 16 Strategic Report
A risk also arises from the effect of currency exchange rates. However, with its production facility in the US, the Group has a partial hedge against the GBP:USD exchange rate. At present, the Group has sales to Europe of less than 5% of Group turnover, so a change in demand from Europe would have an insignificant effect.
A major incident could lead to the temporary closure of a coating plant, resulting in disruption to service.
All operations are carried out to the relevant AS9100 Quality Management System and in the UK to ISO14001 environmental standards. This means that equipment is maintained according to a planned schedule and processes of continuous improvement and ‘5S’ are operated, as well as care for the environment. A full disaster recovery plan, including IT and health and safety systems, are kept up to date. The Group’s business continuity plan includes duality of production capability across the UK and US plants.
The fund raising completed successfully in February 2021 together with the two CBILS loans strengthened our balance sheet. Revenue expense has been severely trimmed in response to the reduced revenue. However, reduction of key staff would damage severely our rate of recovery and future growth. Accordingly, there is no plan to do this. Management will continue to monitor cash diligently.
Post balance sheet
Cash projections made at the year-end, and since then on an ongoing basis, have suggested that the level of cash would not become unacceptable for the foreseeable future. Nonetheless, on 19th January 2022, the Group raised $438k (£325k) through asset finance with The American National Bank and Trust Company, Hardide Coatings Inc’s US bankers.
Planning for increases in capacity
Despite their best efforts, our customers usually have great difficulty in forecasting their long-term demand and often we see large variances, both higher and lower, in their actual demand relative to their forecast. Therefore, we use ‘best estimates’ for our future load and capacity calculations. These are based on our knowledge of customers and sectors, together with estimates of the projected value of new applications in our pipeline. The lead time for the installation of new coating capacity is close to 12 months and so
we need to plan for new capacity up to two years ahead. This is particularly important for large reactor capacity at Bicester, where we have only one such reactor. Increased throughput will make planning easier because that would reduce volatility of sales overall and make each new piece of plant less risky and at the same time have a proportionately smaller effect on the balance sheet.
Increasing volume
As volume and customer numbers increase, the matching of capacity to demand will become easier. This is because each new increment in capacity will become a smaller proportion of existing capacity and the serving of more numerous customers will mean that peaks and troughs in overall demand will become progressively smaller in relation to total turnover. Increasing gross profit, whilst controlling carefully sales and administration costs, is the primary objective for the Group. The first sale to a new customer of Hardide usually takes some years. Accordingly, expenditure on direct and indirect promotion of sales must continue to be made well ahead of the sales resulting from such promotion.
Awareness of the Hardide coating and expanding its market
Being a relatively new product in the industry, and
the fact that it often performs a problem-solving role, mean that awareness among potential customers for Hardide, and our awareness of those customers is hard to achieve. The Group has programmes designed to inform a wider range of industries about Hardide and these are increasingly by means of digital promotion.
Lead time to acceptance
Nearly always, new customers will undertake rigorous testing of Hardide’s coating before accepting it. This process usually takes years and the data arising from the test programmes cannot be shared with other potential customers. To help overcome this problem, Hardide commissioned a series of tests at independent laboratories. The findings from these provide additional data for promotional purposes.
Staff numbers & employee expertise
Employee numbers will not increase nearly as fast
as sales, but a few additional, skilled employees will be added, when needed, to cope with the expected increase in demand and to have suitable individuals in place to comply with succession plans. Since the Hardide coating process is unique and not used by other companies, the only individuals with substantive and up-to-date knowledge of the process are those employed by the Group. This means that recruits for many of our activities have to be trained by Hardide. This takes time, and so the development of new staff must begin ahead of demand.

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