Final Results
To be embargoed until 7.00am
31 July 2007
Surface Transforms Plc
("Surface Transforms" or "the Company")
Final Results for the twelvemonths ended 31 May 2007
* Turnover of £266,789 (2006: £155,177)
* Losses after taxation £646,422 (2006: £870,599 restated on adoption of
FRS20 "Share Based Payments")
* Cash position of £878,971 (2006: £1,743,389)
* Order bank of £126,097 (31 May 2007)
* Koenigsegg being supplied at a rate of two car sets per month
* Mov` it distribution agreement signed, €31,000 sales in the last three
months, with an anticipated value of €150,000 over next two years
* Production orders from StopTech Inc, a US brake system supplier with £
29,390 having been sold in the year ended 31 May 2007
* Continued development with three of the major aircraft brake system
suppliers
* Awarded Grant towards a £1.34 million Collaborative R&D Project by the UK
Department of Trade and Industry of which £28,000 was received in the year
ended 31 May 2007
For enquiries, please contact:
Surface Transforms plc Tel: 0151 356 2141
Kevin Johnson 07802 306956
Kevin D'Silva
John East & Partners Limited (Nomadand Joint Tel: 020 7628 2200
Broker)
Simon Clements
David Worlidge
Teather & Greenwood Ltd (Joint Broker) Tel: 020 7426 9000
Sindre Ottesen
Mark Dickenson
Redmayne Bentley (Private client broker)
Lucy Clapham
Simon Flather
For further Company details visit www.surface-transforms.com, click on Armshare
CHAIRMAN'S STATEMENT
In the 12 months to 31 May 2007, two principal challenges were addressed by the
Company's management and I am pleased to report that significant financial and
operational progress has been made in meeting them. The challenges were:
* to gain at least one other significant automotive brake contract to operate
alongside the supply contract with Koenigsegg Automotive of Sweden; and
* to improve the production efficiency of ceramic brake discs and lower their
unit cost.
The Company starts the 2007/8 financial year with a greater degree of financial
security; a record order bank and three automotive clients who are purchasing
ceramic brake discs on a regular basis. In summary the key achievements in the
period under review were:
* two new aftermarket automotive clients: StopTech Inc and Mov` it Gmbh now
purchase discs regularly alongside Koenigsegg Automotive;
* the factory relocation was completed in April 2007 and as a result
operating efficiency has improved;
* ceramic brake disc costs are now 25 per cent. below the levels of 2006/7
and further reductions will arise when the proprietary carbon densification
process, CVIST, comes on stream, which is expected to be in the third
quarter of 2007;
* the award by the DTI of a three year £1.34 million Collaborative R&D
Project. The award represents a contribution to overheads and an improved
cash flow of £140,000 per annum over three years;
* a paid development agreement with a European aircraft brake system
supplier; and
* paid development work from two new rocket component clients (Rolls-Royce
PLC and MBDA).
FINANCIAL REVIEW
In the 12 months to 31 May 2007, turnover was £266,789 (2006: £155,177).
This represents a 72 per cent. increase on the same period in 2006. Increased
automotive brake disc revenues account for the largest proportion of the
increase and now represent over 50 per cent. of the Company's revenues.
At 31 May 2007, the outstanding order bank was £126,097.
Losses after taxation for the 12 month period were £646,422 (2006: £870,599
restated following adoption of FRS 20 "Share Based Payments").
Shareholder funds at 31 May 2007 were £1,413,058 (2006: £1,997,105) which
included cash deposits of £878,971 (2006: £1,743,389). At 31 May 2007 cash
represented 6.26 pence per share.
Capital expenditure in the year was £193,382.
The Company has no borrowings.
PRODUCTION & NEW TECHNOLGY PROCESSES
Relocation was completed during April 2007 and this has allowed for all of the
Company's operations to be in one location. Production efficiencies have begun
to be implemented and further improvements are expected to be forthcoming in
the first six months of the current financial year.
The development of CVIST, the carbon vapour infiltration process plant, is
nearing completion. The new plant has been installed and the management team
are beginning a three month commissioning phase with completion scheduled
during the third quarter of this calendar year.
Improved purchasing of materials has already reduced the direct cost of an
automotive ceramic brake disc by 25 per cent. compared to 2006/7 and the
completion of CVIST is expected to reduce costs further and we are targeting an
overall 50 per cent. reduction compared with 2006/7.
Capital and project expenditures on CVIST will be in the order of £225,000.
Approximately £200,000 of revenue grants will be received from the Northwest
Development Agency ("NWDA") in relation to this project, reducing the cash
commitment of the Company to £25,000.
AUTOMOTIVE BRAKE SYSTEMS
The success of the supply contract with Koenigsegg Automotive ("Koenigsegg")
has increased interest from a number of automotive companies. Although the
Company has not yet been awarded a supply contract from an established luxury
car manufacturer, there has been progress in this area.
The target market for SystemST ceramic brakes are cars which are typically
priced in excess of €90,000 (£60,000) and there are approximately 250,000 cars
sold within Europe annually within this market category. The key product
features sought by purchasers of ceramic brake discs are:
* extended product life and improved lifetime cost;
* improve handling and comfort;
* improved brake performance;
* corrosion resistant;
* image; and
* lower CO2 emissions.
Recent environmental studies on SystemST ceramic brake discs with Koenigsegg
have shown lower carbon emissions per kilometre and a material improvement of
the carbon footprint in the production and use phases of the lifetime cycle
over iron brake discs.
SystemST is now repesented on more than 20 car platforms including:
Koenigsegg (www.koenigsegg.sw)
SystemST systems have been supplied for over 20 cars and the expectation is
that annual supplies of ceramic discs levels will continue at this level.
StopTech Inc (www.stoptech.com)
This brake system company is the US's leader in balanced brake upgrades for
production cars and production based racecars. Production orders have been
placed and both Surface Transforms and StopTech expect that initially ceramic
brake sets for between 50-100 cars will be required in the aftermarket on an
annual basis.
Mov` it Gmbh (www.movit.de)
After an eight month evaluation period, Mov` it Gmbh and the Company have
signed a four year supply and distribution agreement. Mov' it operates
throughout Europe and in 2006 installed high performance iron disc based brake
systems on over 2,000 cars in the automotive aftermarket. The Company expects
that revenues from the Mov` it agreement will be approximately €150,000 (£
100,000) in the first two years of the contract term.
Ascari Cars (www.ascari.co.uk)
SystemST ventilated ceramic discs have been chosen as standard for the new
Ascari A10. This Ascari model has a five litre, 625 bhp, V8 engine and a
maximum speed of 215 mph. It's commercialisation has not yet been finalised by
Ascari cars of Banbury UK.
Weber Sports cars (www.weber.sw)
Weber launched their new super-car at Top Marques show in Monte Carlo earlier
this year sporting SystemST ceramic discs. Their plan is to build approximately
10 cars per annum.
Tramontana (www.tramontana.es)
Tramontana, another super-car, built in Spain also carries SystemST brake
rotors. Tramontana plan limited production driven by their order book.
A number of other automotive OEMs are currently evaluating SystemST and the
Company will update investors as news becomes available.
AIRCRAFT BRAKE SYSTEMS
Revenues from the aircraft brake systems market sector are principally from
paid development contracts. In September 2006, a third brake system supplier
commenced development work with the Company and this work is focused on
designing a new aircraft brake disc with lower wear characteristics. Lower disc
wear reduces the brake service costs associated with aircraft operation.
Important work with Dunlop Aircraft Braking Systems also continues, now
supported financially by a DTI project award.
ROCKET COMPONETS
The Company's principal client in this sector has been Roxel who purchased
ceramic rocket propulsion components for use in testing trials for a new nozzle
design. In addition, a one year testing programme for a commercial rocket has
just completed and the results have been encouraging. Our ceramic components
are required to extend the operating life time and to reduce the mass compared
with both current carbon-carbon composites and tungsten alloy materials.
In recent months further paid development work has been awarded by new clients:
Rolls-Royce plc and MBDA Missile Systems (MBDA (UK) Limited). Rolls-Royce is
interested in using affordable ceramic material for unmanned aerial vehicle
engines and the Company's material is currently being tested within these
engines. MBDA is a Europe-wide group owned by BAe Systems, EADS and
Finmeccanica and is the largest missile manufacturer in Europe. Work with MBDA
is expected to increase over the next three years as activity is linked to the
development of a new control system applicable to a range of European missiles.
The work will be supported jointly by the UK and French Ministries of Defence
as part of the Innovation and Technology Partnership (ITP) on Materials and
Components for Missiles. We are pleased that Surface Transforms has been
identified as a provider of enabling technology which uses a thermo-structural
material which is also produced at lower cost to existing material. The work
will seek to characterise material design properties, identify different
manufacturing routes and culminate in the production of test component
demonstrators.
NEW FUNDING
Earlier today, the Company announced that John East & Partners Limited, joint
broker to the Company, had placed 5,000,000 new ordinary shares at 20 pence per
share to provide additional funding. The new funds will be combined with
existing cash resources and will be used (i) to accelerate the adoption of
SystemST carbon ceramic discs in the wider automotive brake market; (ii) to
reduce the direct cost to manufacture carbon ceramic discs; and (iii) for
general working capital purposes.
Your board has decided that a placing with institutions rather than an open
offer to all shareholders was in the best interests of the Company because it
substantially reduced the costs of the fundraising (currently estimated at £
105,000).
PEOPLE
This has been a busy year for both management and staff at Surface Transforms
and the commercial and technical progress made by the Company has placed
demands on individuals especially as progress has had to be executed within the
constraints of a factory relocation.
Julio Faria, the founder of the Company decided to step down from an executive
role in December 2007 but we are happy that he will continue as a non-executive
director on the board. Ken Baker joined us in September 2006 as a non-executive
director and his counsel and experience has already been invaluable.
We have continued to incentivise our management and staff with share options,
as we wish to align their rewards with those of shareholders.
I would like to thank all my colleagues for their dedication over the past
year.
OUTLOOK
We see further progress in the coming year in both aircraft and automotive
brake markets. The board believe that Surface Transforms has become recognised
as an industry operator with a world class technology which is being used in
commercial applications and from which the Company is generating revenue,
albeit on a small scale at present. This is particularly evident in the
automotive market.
As a result of the progress achieved to date and the further work planned for
this financial year, we anticipate developing long term commercial agreements
with global industry operators with a view to commercialising the technology on
a greater scale.
We would remind shareholders that our strategy is for the Company to develop
new applications for its technology and, where appropriate, undertake low
volume manufacture. For high volume manufacture, the technology will be
licensed to third parties. This means that the Company will avoid the costs and
time involved in becoming a profitable high volume manufacturer. Against this
background and the current level of overheads, the sales level required to
achieve breakeven is relatively modest.
Kevin D'Silva
Chairman
31 July 2007
Profit and Loss Account
for the year ended 31 May 2007
Note 2007 Adjusted
2006
£ £
Turnover 266,789 155,177
Cost of sales (138,955) (101,706)
Gross profit 127,834 53,471
Distribution costs - (1,613)
Administrative expenses:
Before development costs (586,643) (543,266)
Development costs (560,005) (610,585)
Total administrative expenses (1,146,648) (1,153,851)
Other operating income 176,530 27,155
Operating loss (842,284) (1,074,838)
Interest receivable 59,845 92,662
Loss on ordinary activities before taxation (782,439) (982,176)
Tax on loss on ordinary activities 4 136,017 111,577
Loss on ordinary activities after taxation (646,422) (870,599)
and retained for the financial year
Loss per ordinary share
Basic and diluted 5 (4.61p) (6.20p)
All amounts relate to continuing activities.
Comparative figures restated on the adoption of FRS20 "Share Based Payments".
Balance Sheet
at 31 May 2007
2007 2006
£ £ £ £
Fixed assets
Intangible assets 1,886 4,104
Tangible assets 289,455 170,156
291,341 174,260
Current assets
Stocks 212,181 124,335
Debtors 289,576 84,135
Cash at bank and in hand 878,971 1,743,389
1,380,728 1,951,859
Creditors: amounts (259,011) (129,014)
falling due within one
year
Net current assets 1,121,717 1,822,845
Net assets 1,413,058 1,997,105
Capital and reserves
Called up share capital 140,308 140,308
Share premium account 4,902,715 4,902,715
Other reserves 463,885 463,885
Profit and loss account (4,093,850) (3,509,803)
Shareholders' funds 1,413,058 1,997,105
Comparative figures restated on the adoption of FRS20 "Share Based Payments".
Cash Flow Statement
For the year ended 31 May 2007
2007 2006
£ £
Reconciliation of operating loss to net cash flow from
operating activities
Operating loss (842,284) (1,074,838)
Depreciation charge 74,083 33,411
Amortisation charge 2,218 2,218
Increase in stocks (87,846) (56,813)
Increase in debtors (205,441) (14,471)
Increase/(decrease) in creditors 129,997 (18,775)
Charge in relation to share based payments 62,375 58,729
Net cash outflow from operating activities (866,898) (1,070,539)
2007 2006
£ £
Cash flow statement
Cash flow from operating activities (866,898) (1,070,539)
Return on investments and servicing of finance 59,845 103,989
Taxation 136,017 111,577
Capital expenditure (193,382) (129,690)
Cash outflow before management of liquid resources and (864,418) (984,663)
financing
Management of liquid resources 894,500 987,500
Increase in cash in the year 30,082 2,837
2007 Restated
2006
£ £
Reconciliation of net cash flow to movement in net funds
Increase in cash in the year 30,082 2,837
Cash outflow from liquid resources (894,500) (987,500)
Movement in net funds in the year (864,418) (984,663)
Net funds at the start of the year 1,743,389 2,728,052
Net funds at the end of the year 878,971 1,743,389
Statement of total recognised gains and losses
for the year ended 31 May 2007
2007 Restated
2006
£ £
Loss for the financial year (646,422) (870,599)
Total recognised gains and losses relating to the (646,422) (870,599)
financial year
Prior year adjustments (as explained in note 2) (58,729)
Total gains and losses recognised since last annual (705,151)
report
Reconciliation of movements in shareholders' funds
for the year ended 31 May 2007
2007 Restated
2006
£ £
Loss for the financial year (646,422) (870,599)
Change in relation to Share Based Payment 62,375 58,729
Net reduction in shareholders' funds (584,047) (811,870)
Opening shareholders' funds 1,997,105 2,808,975
Closing shareholders' funds 1,413,058 1,997,105
Notes - forming part of the financial statements
1. Nature of Financial Information
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 May 2007 or 2006. The financial
information for 2006 is derived from the statutory accounts for 2005 which have
been delivered to the registrar of companies. The auditors have reported on the
2006 accounts: their report was unqualified and did not contain statements
under section 237(2) or (3) of the Companies Act 1985. The statutory accounts
for 2007 will be finalised on the basis of the financial information presented
by the directors in this preliminary announcement and will be delivered to the
registrar of companies following the Company's annual general meeting.
2. Basis of preparation
The following accounting policies have been applied consistently in dealing
with items which are considered material in relation to the financial
statements, except as noted below.
In these financial statements the following new standards have been adopted for
the first time:
FRS20 `Share-based payments'
The accounting policy under this new standard is set out below together with an
indication of the effects of their adoption.
The corresponding amounts in these financial statements are restated in
accordance with these policies.
3. Share based payments
The share option programme allows employees to acquire shares of the Company.
The fair value of options granted after 7 November 2002 and those not yet
vested as at the effective date of 1 June 2006 is recognised as an employee
expense with a corresponding increase in equity. The fair value is measured at
grant date and spread over the period during which the employees become
unconditionally entitled to the options. The fair value of the options granted
is measured using an option pricing model, taking into account the terms and
conditions upon which the options were granted. The amount recognised as an
expense is adjusted to reflect the actual number of share options that vest
except where forfeiture is only due to share prices not achieving the threshold
for vesting.
The corresponding amounts in these financial statements are restated in
accordance with the new accounting policy:
The effect of the adoption of FRS20 is set out below:
Year ended
31 May
2006
£
Retained loss as previously reported (811,870)
Prior year adjustment in respect of FRS20 (58,729)
Retained loss as restated (870,599)
The change in accounting policy has resulted in a pre-tax charge of £62,375 for
the year ended 31 May 2007.
Intangible fixedassets and amortisation
Expenditure on patents is capitalised and amortised to nil by equal annual
instalments over the useful economic life of seven and a half years.
Tangible fixed assets and depreciation
Depreciation is provided to write off the cost less the estimated residual
value of tangible fixed assets by equal instalments over their estimated useful
economic lives as follows:
Plant and machinery - 12.5 per cent. - 20 per cent. per annum
Fixtures and fittings - 25 per cent. per annum
Motor vehicles - 25 per cent. per annum
Leasehold improvements - Over life of lease
Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated using the contracted rate or
the rate of exchange ruling at the balance sheet date and the gains or losses
on translation are included in the profit and loss account.
Leases
Operating lease rentals are charged to the profit and loss account on a
straight line basis over the period of the lease.
4. Taxation
Analysis of credit in year
2007 2006
£ £
UK corporation tax
Current tax on income for the year -
Research and development tax repayment (136,017) (111,577)
Tax on loss on ordinary activities (136,017) (111,577)
Factors affecting the tax credit for the current period
The current tax credit for the year is lower (2006: lower) than the standard
rate of corporation tax in the UK of 30 per cent. The differences are explained
below:
2007 2006
£ £
Current tax reconciliation
Loss on ordinary activities before tax (782,439) (982,176)
Current tax at standard rate of 30 per cent. (234,732) (294,653)
Effects of:
Expenses not deductible for tax purposes 3,118 18,334
Depreciation for period (less than)/in excess of capital (39,653) 10,461
allowances
Short-term timing differences (1,649) 2,905
Tax losses incurred in the period 272,916 262,953
Research and development tax repayment (136,017) (111,577)
Total current tax credit (see above) (136,017) (111,577)
Factors that may affect future tax charges
The effective tax rate in future years is expected to be below the standard
rate of corporation tax in the UK due principally to historical losses which
have been carried forward.
5. Loss on ordinary shares
The calculation of basic loss per ordinary share is based on the loss for the
financial year divided by the weighted average number of shares in issue during
the year.
Losses and number of shares used in the calculations of loss per ordinary share
are set out below:
Basic 2007 2006
£ £
Loss after tax (646,422) (870,599)
Weighted average number of shares 14,030,748 14,030,748
Loss per share (4.61p) (6.20p)
The calculation of diluted loss per ordinary share is identical to that used
for the basic loss per ordinary share. This is because the exercise of options
would have the effect of reducing the loss per ordinary share and is therefore
not dilutive under the terms of Financial Reporting Standard 22.
Comparative figures restated on the adoption of FRS20 "Share Based Payments"
6. Dividends
No dividends were paid or are proposed in respect of the year ended 31 May
2007.
7. Report and Financial Statements
Copies of the Report and Financial Statements will be posted to shareholders
today and will be available from the Company's registered office at Unit 4,
Olympic Park, Pool Hall Road, Ellesmere Port, South Wirral, Merseyside CH66 1ST
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