Final Results

Surface Transforms PLC 02 September 2003 2 September 2003 Preliminary results for the year ended 31 May 2003 Surface Transforms plc, manufacturers of high technology carbon ceramic materials, announces preliminary results for the year ended 31 May 2003. Financial and business highlights: • Introduced new business model following strategic review in February 2003 • Successfully increased revenues from significantly lower cost base • Increased turnover by 130% to £240,000 (2002: £104,000) • Operating loss before tax of £1.13 million, with the second half losses falling to £333,000. • Partnership with world-leading aircraft brake systems manufacturer now producing regular monthly revenues • Strengthened board with the appointments of two non-executive directors, both have experience of building profitable high technology businesses • Moved from Ofex to the AIM market and raised £1.3 million (£0.9 million net) Derek Whitney, Chairman of Surface Transforms, comments: 'The Company has made good progress and we have achieved some important milestones in our principal aerospace and automotive markets. Following the strategic review and the management and board changes, the Company has now embarked on the next phase of expansion which will see our technology have broader application in our target markets. These markets include additional commercial and military aircraft brake systems, rocket motor systems, clutch pad applications in Formula 1, high performance and GT cars and a number of other industrial and defence applications.' For enquiries please contact: Julio Faria Neil Boom Managing Director Managing Director Surface Transforms plc Gresham PR Ltd. 01928 735 498 020 7404 9000 Chairman's Statement The Company has made good progress and has achieved some important milestones in its principal aerospace and automotive markets. Following a strategic review, the Company is now focussed on three core activities as it develops its proprietary carbon ceramic technologies. These are (1) knowledge based collaborative ventures with global commercial partners in aircraft braking and rocket propulsion materials. (2) contract development activity with commercial partners in the automotive and transportation markets where carbon fibre reinforced ceramic (CFRC) application opportunities abound; and (3) CFRC product sales. Financial Results Turnover for the year was 130% higher than the previous period at £239,755 (2002: £104,063). Operating losses for the year were £1,129,909 (2002: £569,033 loss) and these included non-recurring, exceptional costs associated with the write down of £293,048 of inventory relating to the change in the Company's approach to the Formula 1 automotive market. Operating losses before exceptional items were £836,861 (2002: £569,033 loss). In February, the Board initiated a strategic review which resulted in the substantial reduction of the Company's cost base in the second half of the year. Operating losses in the second half of the year reduced to £332,637 (full year 2003 : £1,129,909 loss) The Company's cash and working capital position has been stabilised since the year end; this has resulted from improved trading and the receipt of substantial R&D tax credits relating to the previous two years. The Company has no bank borrowings. Operating Activities AIRCRAFT BRAKES The collaborative partnership with a world-leading aircraft brake systems supplier continues to progress well and our partner has committed considerable financial and technical resources to the technical collaboration. In December 2002, the Company delivered the initial pilot plant on time and on budget. This plant is producing test brake materials for a yet-to-be-launched wide-bodied commercial jet airliner. Work is progressing on the full-scale plant design and Surface Transforms is discussing important service and licence agreements with its partner which should underpin future income and long term licence payments if Surface Transforms's technology is ultimately adopted on the targeted aircraft. Surface Transforms's materials are included in the test programme because of their weight-saving advantages over rival products. In the aerospace market small weight savings can produce substantial reductions in aircraft running costs, a crucial element in the decision-making process for all aircraft buyers. Surface Transforms's products have a considerable technical edge. As ever, shareholders should be aware that as with all new leading-edge technologies there are no guarantees that the Surface Transforms's technology will ultimately be adopted on the aircraft. Nevertheless, progress to date and the investment made by our partner is encouraging and indicates that Surface Transforms's product has applications as an economic solution for a variety of aircraft braking requirements. AUTOMOTIVE MARKETS After the disappointment in December 2002 of the FIA rule change, stipulating one supplier only for the F1 brake market, the Company has sought to widen the market application opportunities it has with its proprietary CFRC technology. Indy Racing and GT In January 2003, Surface Transforms received its first order to supply development brake discs and pads from one of the most successful teams that competes in the Indy Car Racing League (IRL). The order, for the supply of brake discs and pads, has been delivered and the Company is working closely with the US distributor to evaluate the brake pad prototypes to market CFRC brakes to other IRL teams. Entry to the GT car market has been recent and testing has commenced with two established GT racing teams, both of which have conducted a number of successful on-car tests and off-car assessments. This market is expected to have good potential for Surface Transforms over the longer term. High Performance Cars Surface Transforms is collaborating on developing and testing products with a leading international supplier of complete braking systems to a number of the car manufacturing majors. The Company's partner's sales are in both the OEM (original equipment manufacture) and the after markets. CARBON FIBRE PREFORMS Several orders for carbon fibre preforms have been successfully completed and delivered satisfactorily to customers. The Company is now well-placed to push ahead for a greater penetration of this market. In preparation for a focused sales campaign, the needling plant has been relocated to a new, self-contained unit that is much better suited to production than the previous location. There is confidence that the personnel and resources are available to significantly increase the Company's share of the carbon preforms market. OTHER MARKET APPLICATIONS Surface Transforms has been working since 2001 in development programmes to supply a bespoke rocket propulsion part to a division of BAe Systems called Roxel. Testing on the lightweight rocket component continues to progress. The Company has recently been invited by Roxel to tender for a second programme requiring a different specification part to be supplied in CFRC material. In the rail market, Surface Transforms has supplied the development partner SabWabco, the world's leading supplier of complete rail brake systems, with several full-scale rotors as part of a new programme for a lightweight rail project. Work on products for two important and fast-growing new market applications for resin transfer moulding and ballistics is providing encouraging results, and demonstrates that Surface Transforms's CFRC technology can be used more broadly in commercial contexts. The Company shall report on these in more detail as these development projects mature. Directors and the Board The expansion of the Company, the listing on AIM and the recently initiated Company-wide strategic review have ushered in a number of changes on the board designed to provide a platform for future expansion. The executive directors are Julio Faria, Managing Director and Dr. Geoff Gould, Sales & Marketing Director. David Levis, Commercial Director, has expressed his intention to resign from the Company and pursue his other interests. His contribution to the Company over the past three years has been significant and we wish him well with his future career. We shall shortly be appointing a Financial Controller, with the intention that this is made a board appointment after an appropriate period. Kevin D'Silva joined the board in March 2003 as a non-executive director. He has extensive strategic business experience in the public company arena and an excellent track record in the building of a fast-growing, profitable technological group. In April this year, Peter Holland joined the board as a non-executive -director,and brought with him the scientific and marketing experience accumulated over 20 successful years in the chemical polymer processing and formulation business. David Williams left the board in April 2003 and returned to his Formula 1 career as an executive director in the Jordan team. I would like to place on record the thanks of all connected with the Group to David Williams. After three years as Chairman, which saw Surface Transforms float successfully on Ofex and then move to AIM, I shall not be seeking re-election as director at the forthcoming Annual General meeting and the board has elected Kevin D'Silva to succeed me as Chairman. I shall continue to remain a shareholder and expect that the new senior managerial talent that has been introduced to the Company will progress the business through its next phases of expansion. Outlook Following the strategic review and the management and board changes, the Company has recently commenced the next phase of expansion, which will see Surface Transforms's technology have broader commercial applications in its target markets. These will include additional commercial and military aircraft braking systems, rocket motor systems, clutch applications, high performance and GT cars and a number of other industrial and defence applications. The prospects within the Company's chosen application markets have widened considerably this past calendar year, despite the disappointments in the Formula 1 market. The revised business model, focuses, alongside CFRC product sales, on collaborative and contract development of its CFRC technology with a larger range of clients. This strategy reduces over-dependence on a few large client projects, while at the same time improves cash inflow and application diversity, and over the longer term should lead to the greater commercial adoption of Surface Transforms's unique CFRC technology. SURFACE TRANSFORMS PLC PROFIT & LOSS ACCOUNT YEAR ENDED 31 MAY 2003 Note 2003 2003 2003 2002 Before Exceptional After As restated exceptional items exceptional (see note 2) items (see note 4) items £ £ £ £ Turnover 239,755 - 239,755 104,063 Cost of (105,814) (293,048) (398,862) 218,120 sales --------------- ---------------- -------------- ---------------- Gross profit/ 133,941 (293,048) (159,107) 322,183 (loss) Distribution (2,552) - (2,552) (12,043) costs Administrative (617,644) - (617,644) (409,271) expenses before development costs Development (350,606) - (350,606) (479,902) costs Other - - - 10,000 operating income --------------- ---------------- -------------- ---------------- Operating (836,861) (293,048) (1,129,909) (569,033) loss --------------- ---------------- Interest 6,677 7,968 receivable and similar income -------------- ---------------- Loss on ordinary activities before (1,123,232) (561,065) taxation Tax on loss on 158,850 - ordinary activities -------------- ---------------- Loss on ordinary activities after taxation (964,382) (561,065) and for the financial year ============== ================ Loss per ordinary share Basic and 3 (10.86p) (7.5p) diluted ============== ================ All amounts relate to continuing activities. SURFACE TRANSFORMS PLC BALANCE SHEET AS AT 31 MAY 2003 Note 2003 2002 £ £ £ £ Fixed assets Intangible 10,758 12,976 assets Tangible 97,893 130,376 assets -------------- ------------------ 108,651 143,352 Current assets Stocks 70,068 338,171 Debtors 294,387 76,834 Cash at bank 6 178,175 139,595 and in hand ---------------- --------------- 542,630 554,600 Creditors: amounts falling due within (77,608) (118,442) one year ---------------- --------------- Net current 465,022 436,158 assets -------------- ------------------ Net assets 573,673 579,510 ============== ================== Capital and reserves Called up 93,799 79,156 share capital Share premium 1,967,775 1,023,873 account Other 520,399 520,399 reserves Profit and (2,008,300) (1,043,918) loss account -------------- ------------------ Equity 573,673 579,510 shareholder's funds ============== ================== SURFACE TRANSFORMS PLC Reconciliation of movements in shareholders' funds 2003 2002 £ £ Loss for the financial year (964,382) (561,065) New share capital subscribed (net of issue costs) 958,545 592,852 ------------------ ------------------ Net (reduction in)/addition to (5,837) 31,787 shareholders' funds Opening shareholders' funds 579,510 547,723 ------------------ ------------------ Closing shareholders' funds 573,673 579,510 ================== ================== CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MAY 2003 Note 2003 2002 £ £ Net cash outflow from operating 5 (917,597) (768,880) activities Return on investments and servicing 6,677 7,968 of finance Taxation - - Capital expenditure (9,045) (52,737) ----------------- ----------------- Cash outflow before financing (919,965) (813,649) Financing 958,545 592,852 ----------------- ----------------- Increase/(decrease) in cash in the 38,580 (220,797) period ================= ================= Notes 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 2003 or 2002. The financial information for 2002 is derived from the statutory accounts for 2002 which have been delivered to the registrar of companies. The auditors have reported on the 2002 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 2003 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 accounting policies have been applied consistently in dealing with items which are considered material in relation to the company's financial statements except as noted below. The company has adopted FRS 18 'Accounting policies' and FRS 19 'Deferred tax' in these financial statements. The financial statements have been prepared in accordance with applicable accounting standards and in accordance with the historical cost convention. Change in format of profit and loss account In accordance with FRS 18 ' Accounting policies' the directors decided to change the format of the profit and loss account to separately highlight development expenses. The directors believe this provides a better understanding of the company's activities in the year. Cost of sales, administrative expenses and development expenses have all been reclassified. The change in format has resulted in no change to operating loss in either year. 3. Loss per share 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 2003 2002 £ £ Loss after tax (964,382) (561,065) Weighted average number of shares 8,882,861 7,515,251 Loss per share 10.86p 7.5p ================ ================ 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 warrants and options would have the effect of reducing the loss per ordinary share and is therefore not dilutative under the terms of FRS14. 4. Exceptional items Following Formula 1 regulatory changes introduced during the year which restricted the supply of products to that market, the directors decided to terminate all ongoing Formula 1 development. This resulted in a Formula 1 stock write down of £293,048. 5. Reconciliation of operating loss to net cash flow from operating activities 2003 2002 £ £ Operating loss (1,129,909) (569,033) Depreciation charge 41,628 38,886 Amortisation charge 2,218 2,224 Profit on sale of fixed assets (100) - Decrease/(increase) in stocks 268,103 (300,269) Increase in debtors (58,703) (3,724) (Decrease)/increase in creditors (40,834) 63,036 ------------------- ------------------- Net cash outflow from operating (917,597) (768,880) activities =================== =================== 6. Reconciliation of net cash flow to movement in net funds 2003 2002 £ £ Increase/(decrease) in cash in the 38,580 (220,797) period ------------------ ------------------ Change in net funds resulting from cash 38,580 (220,797) flows ------------------ ------------------ Movement in net funds in the period 38,580 (220,797) Net funds at the start of the period 139,595 360,392 ------------------ ------------------ Net funds at the end of the period 178,175 139,595 ================== ================== This information is provided by RNS The company news service from the London Stock Exchange

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