Half-year Financial Report

RNS Number : 4793L
Surface Transforms PLC
13 September 2021
 

The information contained within this announcement is deemed by the Company to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018.  Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

13 September 2021

 Surface Transforms plc

("Surface Transforms" or "the Company")

 

Half-year financial results for the six months ended 30 June 2021

 

Surface Transforms (AIM: SCE) manufacturers of carbon fibre reinforced ceramic brake discs, announces its half-year financial results for the six months ended 30 June 2021.

 

Financial highlights:

 

· Revenue increased by 34% to £1.2m (H1-2020: £0.9m)

· Cash at 30 June 2021 was £17.2m (H1-2020: £2.0m)

· Gross profit increased by 27% at £0.7m (H1-2020: £0.6m)

· Total administrative expenses rose by 35% to £2.9m (H1-2020: £2.1m) as a result of increased customer testing costs, headcount and depreciation in anticipation of the commissioning of Production Cell One

· Loss before tax increased to £1.9m (H1-2020: £1.2m)

· Capital expenditure on property, plant and equipment was £0.8m (H1-2020: £0.3m) to which a further £3.7m of capital equipment purchase orders were contracted in the period

· Successfully raised £19m of new equity (after fees) in a heavily over-subscribed fund raise

 

Sales and Operational Highlights:

 

· Series production commenced for the Aston Martin Valkyrie

· Post balance sheet date, contract wins announced with a new customer, now described as OEM 10, of £20m and a follow-on order with an existing customer, OEM 5, of €5m

· Bringing our overall lifetime value, OEM order book to circa £70m sales

· Good progress on both commercial discussions and ongoing successful product testing with several other new and existing customers

· Production Cell One will be ready for the ramp up in sales forecast in Q4-2021

· Significant revision to the Company's manufacturing strategy which, inter-alia, is expected to: save £10m in the subsequent equipping of the Knowsley site; provide £50m of annual sales capacity in early 2023, an increase of £15m from previous capacity forecast (without new capital expenditure); and reduce our projected carbon footprint

· Strengthened the Board with the addition of two independent non-executive directors

 

Outlook

 

The Company now expects to enter a period of high growth, partially, but not solely based on a lifetime value OEM order book of circa £70m. Indeed, we repeat the statement made by the Chief Executive in the manufacturing strategy announcement of 1 September "at the time of the fundraising we said that we thought there could be sufficient demand to fill the Knowsley factory by 2025 (£75m sales), albeit these projections are still uncontracted…we have now concluded that we may want this capacity by 2024."

 

However, the immediate 2021 outlook is driven by the background combination of customer start of production dates ("SOP") and the subsequent "ramp" of production from SOP to mature manufacturing volumes. In neither case can we be totally certain of the customers' projections. It is not uncommon for SOP dates to be delayed and the ramp varies both by customer and is specific to each individual customer circumstances.

 

These uncertainties are impacting our view of the outlook for 2021. Sales in the last quarter are dominated by the forecast SOP for OEM 8. As described below the SOP of our model derivative has slipped into Q1 2022, but as the customer's supply chain will always require our parts before the customer's SOP, the impact on Surface Transforms in the final months of this year is unclear. Discussions are continuing; however, in the extreme position of parts not being required until Q1 2022, this would shift approximately £2m of budgeted 2021 sales to a future date.

 

In contrast to these short-term uncertainties, the forecast for 2022 has become more robust. There are no major forecast SOPs in the year and the issue of the ramp for OEM 8 is offset by the commercial success of the car, demonstrated by the customer's higher than originally forecast order book. Nonetheless, using our policy that we only provide guidance based on firm contract awards we make no changes here and now to our 2022 revenue expectations.

 

However, we reiterate our previous statements, that we expect to be profitable in 2022.

 

Summary

 

The Company continues to announce contract wins with new and existing customers and is working on a significant number of unannounced projects. All these customer R&D projects are either going to plan or exceeding expectations.

 

The hard, detailed work of commissioning Cell One has continued, and the cell will be ready for production when needed to satisfy the budgeted ramp up of sales. Additionally, as part of the process for installing Cell Two, the Company has reviewed and subsequently adopted a new manufacturing strategy which will lead to the change from the Knowsley plant's modular plan to a single site, single production line concept. The implementation of this plan will provide £50m of annualised sales capacity in 2023 and if needed and with further capital expenditure, £75m of annualised sales capacity in 2024, shorter lead times with lower cash need and reduced projected carbon footprint.

 

There are some short term 2021 outlook concerns over the precise SOP date for the OEM 8 model and the shape of its subsequent production ramp, but these concerns cover a short period in the context of a sales opportunity that is increasing in size with the customer.

 

The Company continues to ascribe the highest priority to underpinning its strong Environmental, Social and Governance credentials. In the period, actions included strengthening the Board, incorporating a reduced carbon footprint as a key criterion for furnace selection, installing emission measuring equipment that exceeds regulatory requirements, increasing employment in a deprived area of the country and continuing to build our relationship with the local community.

 

The regulatory discussions and lobbying to include brake dust regulations in the new Euro 7 regulations accelerated in the period. There are no certainties to this process, but enhanced brake dust regulations would be beneficial to all carbon ceramic ("CC") disc suppliers.

 

Finally, I would like to conclude by recording the Board's appreciation of the outstanding contribution by all members of the team. Thank You!

 

 

 

David Bundred

Chairman  

For enquiries, please contact:

Surface Transforms plc.    +44 151 356 2141

David Bundred, Chairman

Kevin Johnson, CEO 

Michael Cunningham CFO

 

Zeus Capital Limited (Nominated Advisor and Joint Broker)  +44 20 3829 5000

 

David Foreman / Dan Bate / Jordan Warburton (Corporate Finance)

Dominic King (Corporate Broking)

finnCap Ltd (Joint-Broker)    +44 20 7220 0500

Ed Frisby / Abigail Kelly (Corporate Finance)
Richard Chambers/Barney Hayward (ECM)

About Surface Transforms

Surface Transforms plc. (AIM:SCE) develop and produce carbon‐ceramic material automotive brake discs. The Company is the UK's only manufacturer of carbon‐ceramic brake discs, and only one of two mainstream carbon ceramic brake disc companies in the world, serving customers that include major OEMs in the global automotive markets.

The Company utilises its proprietary next generation Carbon Ceramic Technology to create lightweight brake discs for high‐performance road and track applications for both internal combustion engine and electric vehicles. While competitor carbon‐ceramic brake discs use discontinuous chopped carbon fibre, Surface Transforms interweaves continuous carbon fibre to form a 3D matrix, producing a stronger and more durable product with improved heat conductivity compared to competitor products; this reduces the brake system operating temperature, resulting in lighter and longer life components with superior brake performance. These benefits are in addition to the benefits of all carbon‐ceramic brake discs vs. iron brake discs: weight savings of up to 70%, longer product life, consistent performance, reduced brake pad dust and corrosion free.

For additional information please visit www.surfacetransforms.com

Financial Review:

 

Revenue in the six months ended 30 June 2021 increased to £1,207k (H1-2020: £902k)   ahead of expectations, mainly reflecting higher than forecast invoicing of prototype parts and engineering services to OEM customers.

 

Gross profit increased to £747k (H1-2020: £590k) and gross margin was 62% (H1-2020: 65%). Gross margin percentage reduced slightly but is expected to recover in the second half of the year as we see both the cost savings from the use of the new furnaces and volume purchasing effects from series production.

 

Administrative expenses before R&D costs, rose £353k to £1,281k (H1-2020: £928k) driven by both increased headcount and staff costs (£263k) and an increase in depreciation of £90k. Both increases are in anticipation of the commissioning of Production Cell One and were forecast at the time of the fundraising. Headcount rose by 22 staff in the six-month period and the Company expects to recruit a further 12 staff in the second half of the year.

 

Research expenses increased £395k to £1,607k (H1-2020: £1,212k). This increase reflects the significant growth in testing activity on new projects, including off-site test houses and prototypes for testing, where there is no customer contribution.

 

Cash at 30 June was £17,197k (December 2020: £1,058k), to which can be added £576k of R&D tax credit received in July. The 30 June 2021 balance reflects the February fundraise of £19m after fees.

 

The Company has also been awarded a Future Growth Fund loan from the local authority for £1m on favourable commercial terms repayable over 5 years.

 

Loss per share was 1.03p (H1-2020: 0.82p).

 

Progress with potential OEM customers

 

Surface Transforms is undertaking testing with several OEMs, including existing customers and those who have not tested our products before. These OEMs wish to control the information flow on both this activity and the subsequent technology and supplier selection. Therefore, we only disclose names after our customers have done so and assign project names or numbers to respect that confidentiality.

 

In general, all the tests are either going to plan or exceeding expectations.

 Electric vehicles: The technical characteristics of our product - notably light weight, significant reduction in brake dust, no brake fade and elimination of galvanic corrosion - are particularly relevant to electric vehicles ("EV") and thus whilst we are delighted that we continue to win contracts on internal combustion engine ("ICE") vehicles it is likely that by 2025 this EV segment will dominate our sales because it is currently dominating our project activity.

 

OEM 8: The Company won a £27.5m contract with this customer in 2020 and, at that time the customer's plan was standard fit on a new derivative of an EV model in their range. The orders for the car have greatly exceeded the customer's expectations, which in turn is expected to lead to higher volumes for Surface Transforms. The customer is now discussing with suppliers the introduction of CC brakes through a "performance pack" version of the car. The discussions include seeking significantly higher capacity commitments. Whilst we cannot forecast the outcome of these discussions as the whole supply chain will be constrained by whichever single supplier has the greatest capacity constraint; it is nevertheless an encouraging development.

 

These changes and subsequent capacity discussions have led to a delay to SOP for our model derivative which is consuming the contingency that we built into the programme launch. These delays may impact current expectations of 2021 sales. If our timing contingency were to be exhausted and there were no sales to OEM 8 in 2021 this would reduce sales by £2m in the current year. We would expect 2022 sales to be higher than previously guided, however until the whole supply chain capacity discussions have concluded we are maintaining previous revenue guidance.

 

OEM 10: This new customer is a mainstream OEM and one of the largest in the world. It was therefore encouraging to win a £20m contract on an ICE car, forecast to launch in mid-2024. Fitment is standard on both axles of the car.

 

OEM5: This is a mainstream German OEM. We won our first €11m contract with them in 2019. The contract envisaged further awards as the technology had then been approved for general use across their wider vehicle range. The first potential award, in 2020, was a victim of the Covid resource issue as the planned facelift was cancelled. It is therefore encouraging that we won the first "carry-over" order with this customer, post balance sheet, in August 2021, worth €5m over 5 years starting in 2024. We now regard ourselves as 'back on track' and expect future "carry-over" awards from this customer in the future.

 

OEM 9: This potential new customer, announced during the fund raise, has delayed the SOP for our target car by one year to mid-2023. The dialogue with the customer is continuing and we expect to make further announcements in 2022. In the meantime, and in accordance with our general policy we have not included potential sales from OEM 9 in our forecasts.

 

OEM 3: This customer is testing our product for all divisions within their parent company and thus potentially extends to OEM 2 and 4 as well. The customer has a unique environmental test that Surface Transforms has been endeavouring to pass for some time. The Company has made good progress on this project in the period, indeed arguably more progress has been made in the last six months than in the last three years. The Company is currently in discussions with the customer with regard to our recent test results.

 

Aston Martin Valkyrie: It is most encouraging to report that Aston Martin has now started production with Surface Transforms delivering CC brake discs on this car. Production will continue into mid-2022.

 

Retrofit and Near OEM: Retrofit sales are fitment of our discs onto already registered cars replacing either the in-situ grey iron, or frequently, our competitor's CC discs. Near OEM sales are to a number of very low volume specialist manufacturers, some of whom make less than ten cars per year. Sales into these segments have been the bedrock of Surface Transforms over the past ten years.

 

Whilst market size is modest against the above OEM customers it is encouraging to report that we still see growth in the segment, particularly retrofit where retail customers see the benefits of using our technology against competing technologies; end-user feedback that is not lost on the OEMs.

 

Progress on Operations

 

As previously reported the Company has current annualised sales capacity for £4m sales from what we describe as the Small Volume Production Cell ("SVP"). The construction of Production Cell One has been underway for a few years which (together with SVP) will raise the site capacity to £20m sales when it enters production at the year end. In February 2021 the Company raised £19m, after fees, to increase site sales capacity to £35m sales by building Production Cell Two.

 Production Cell One commissioning ; Work on this project has dominated operational activity over the reporting period. There have been several detailed issues to resolve but we can report that every furnace has now produced parts and the overall cell will be ready for production when needed in the next few months.

 

Production Cell Two design and revised manufacturing strategy: As previously reported, the Company approached the design and procurement of Production Cell Two as part of the wider plan to provide site sales capacity of £75m in 2025. After internal assessment and extensive discussions with furnace supplier partners the Company has revised its manufacturing strategy which means that the Company will no longer be building modular cells and instead approach the project as a plant wide "single production line" project.

 

The effects of the new manufacturing strategy are:

· saving approximately £10m in equipping the complete Knowsley factory

· increasing our 2023 sales capacity by £15m p.a. from £35m p.a. to £50m p.a. with no new capital equipment cash needed

· reducing implementation time for equipping the whole factory by approximately 18 months

· significantly increasing capacity implementation flexibility beyond 2022 as the business grows over the next 2 to 3 years

· reducing our projected carbon footprint by using more environmentally friendly furnace technology

The orders for the first furnaces consistent with this strategy have been placed.

Cost reductions: Continuous reduction in manufacturing cost remains a key objective for the Company and is arguably a key requirement of all automotive suppliers. There have been cost reductions in the period, as new furnaces have contributed to current production, but the main effect will be seen in the next few months as we see the cost savings from the use of the complete Cell One production line, as well as the volume purchasing effects from series production.

Progress on Environmental, Social and Governance ("ESG")

The Company continues to extend its ESG credentials. Our product reduces carbon emissions on ICE vehicles through reduced vehicle weight; a benefit that is needed even more on heavier EVs. Additionally, CC discs significantly reduce brake dust particles being released into the atmosphere and watercourse, an issue of increasing interest to regulators. And finally, CC discs eliminates galvanic corrosion, a safety concern for grey iron discs on EVs.

 

The Board regularly reviews progress on this subject and intends to issue an information memorandum for interested stakeholders in 2022. ESG activities of the Company in the period included:

 

· Regular measurement of progress against several sustainability criteria selected by the Board

· carbon footprint reduction set as one of the key criteria in the selection of the Company's furnace partner's technology

· as part of our determination to be a good neighbour, the Company is installing continuous emission measuring equipment that exceeds regulatory requirements

· providing increased employment opportunities in one of the most deprived boroughs in the country continued to deepen the Company's relationships with the local community

· the Company increased both the independence and diversity of the Board through the recruitment of two new non-executive directors Matthew Taylor and Julia Woodhouse

 

Developments in braking regulations

 

We note increased lobbying by environmentalists to include brake dust regulations in the forthcoming Euro 7 emission standards, hitherto confined to engine emissions. Lobbying has included, for example, questions in the European parliament, internal EU discussion papers and request for comment by the OEMs. Of course, this may not lead to stronger regulations, but an industry specialist journalist has described the brake system suppliers as currently being "Inside the eye of a dust storm". Regulations to reduce brake dust would be advantageous to all the CC disc suppliers.

 

 

Statement of Total Comprehensive Income

For the six months ended 30 June 2021

 

 

 Six Months

 Six Months

 Year 


 Ended

 Ended

 Ended


30-Jun-21

30-Jun-20

31-Dec-20


Unaudited

Unaudited

Audited

Revenue

1,207

902

1,952

Cost of Sales

(459)

(312)

(642)

Gross Profit

747

590

1,310





Other Income

11

154

240





Administrative Expenses:




Before research and development costs

(1,281)

(928)

(1,888)

Research and development costs

(1,607)

(1,212)

(2,468)

Total administrative expenses

(2,888)

(2,140)

(4,356)





Operating loss before non recurring items

(2,130)

(1,396)

(2,806)





Non-recurring items

(6)

-

-





Financial Income

-

-

-

Financial Expenses

(56)

(55)

(111)

Loss before tax

(2,192)

(1,451)

(2,917)

Taxation

277

276

614

Loss for the period after tax

(1,915)

(1,175)

(2,303)





Total comprehensive loss for the year attributable to members

(1,915)

(1,175)

(2,303)





Loss per ordinary share




Basic and diluted

(1.03)p

(0.82)p

(1.54)p

 

 

Statement of Financial Position

As at 30 June 2021

 

Six Months

Six Months

Year


Ended

Ended

Ended


30-Jun-21

30-Jun-20

31-Dec-20


£'000

£'000

£'000


Unaudited

Unaudited

Audited

Non-current Assets




Property, plant and equipment

6,136

5,588

5,626

Intangibles

333

162

278


6,469

5,750

5,904

Current assets




Inventories

724

921

575

Trade and other receivables

1,388

950

1,078

Cash and cash equivalents

17,197

2,019

1,058


19,309

3,890

2,711

Total assets

25,778

9,640

8,615





Current liabilities




Other interest bearing loans and borrowings

75

83

75

Loans associated with right of use assets

225

140

224

Trade and other payables

1,061

798

920


1,362

1,021

1,219

Non-current liabilities




Government Grants

200

200

200

Loans associated with right of use assets

1,077

1,198

1,147

Other interest bearing loans and borrowings

257

471

371

Total liabilities

2,896

2,890

2,937





Equity




Share capital

1,951

1,546

1,549

Share premium

41,436

22,733

22,779

Capital reserve

464

464

464

Retained loss

(20,971)

(17,993)

(19,114)

Total equity attributable to equity shareholders of the company

22,880

6,750

5,678

 

 

Statement of Cash Flow

For the six months to 30 June 2021

 

 Six Months

 Six Months

 Year 


 Ended

 Ended

 Ended


30-Jun-21

 31-Jun-20

31-Dec-20


 '000

 '000

 '000


 Unaudited

 Unaudited

 Audited

Cash flow from operating activities




Loss after tax for the period

(1,915)

(1,175)

(2,303)





Adjusted for:




Depreciation and amortisation charge

312

222

494

Equity settled share-based payment expenses

60

96

106

Foreign exchange losses / (gains)

28

-

18

Financial expense

56

55

111

Loss on disposal of Fixed assets

6

-

-

Taxation

(277)

(276)

(614)


(1,729)

(1,078)

(2,188)

Changes in working capital




Decrease/(increase) in inventories

(149)

85

431

Decrease/(increase) in trade and other receivables

(33)

368

520

Increase/(decrease) in trade and other payables

87

(229)

(109)


(1,825)

(854)

(1,346)

Taxation received

276

334

Net cash used in operating activities

(1,825)

(578)

(1,012)





Cash flows from investing activities




Acquisition of tangible and intangible assets

(823)

(277)

(643)

Proceeds from disposal of property, plant and equipment

2

-

-

Net cash used in investing activities

(821)

(277)

(643)





Cash flows from financing activities




Proceeds from issue of share capital, net of expenses

19,059

2,206

2,256

Payment of finance lease liabilities

(45)

(7)

(56)

Proceeds from long term loans

(1)

(40)

(128)

Interest paid

(56)

(55)

(111)

Net cash generated from financing activities

18,956

2,104

1,961

Net (decrease)/increase in cash and cash equivalents

16,310

1,249

306

Foreign Exchange losses

(28)

-

(18)

Cash and cash equivalents at the beginning of the period

1,058

770

770

Cash and cash equivalents at the end of the period

17,340

2,019

1,058

 

 

Statement of Changes in Equity

For the six months to 30 June 2021


Share capital

Share premium account

Capital reserve

Retained loss

Total


£'000

£'000

£'000

£'000

£'000

Balance as at 31 December 2020

1,549

22,779

464

(19,115)

5,678

Comprehensive income for the year






Loss for the year




(1,915)

(1,915)

Total comprehensive income for the year

  - 

  - 

  - 

(1,915)

(1,915)

Transactions with owners, recorded directly to equity






Shares issued in the year

400

19,600



20,000

Share options exercised

2

29



31

Cost of issue to share premium


(973)



(973)

Equity settled share based payment transactions



60

60

Total contributions by and distributions to the owners

402

18,656

  - 

60

19,119

Balance at 30 June 2021

1,951

41,436

464

(20,969)

22,882

 

Statement of changes in equity






For the six months ended 30 June 2020












Share capital

Share premium account

Capital reserve

Retained loss

Total


£'000

£'000

£'000

£'000

£'000

Balance as at 31 December 2019

1,361

20,712

464

(16,917)

5,620

Comprehensive income for the year






Loss for the year




(1,175)

(1,175)

Total comprehensive income for the year

  - 

  - 

  - 

(1,175)

(1,175)

Transactions with owners, recorded directly to equity






Shares issued in the year

185

2,220



2,405

Cost of issue to share premium


(199)



(199)

Equity settled share based payment transactions



99

99

Total contributions by and distributions to the owners

185

2,021

  - 

99

2,305

Balance at 30 June 2020

1,546

22,733

464

(17,993)

6,750

 

 

 

 

 

 

 

Statement of changes in equity






For the 12 months ended 31 December 2020












Share capital

Share premium account

Capital reserve

Retained loss

Total


£'000

£'000

£'000

£'000

£'000

Balance as at 31 December 2019

1,361

20,712

464

(16,917)

5,620

Comprehensive income for the year






Loss for the year




(2,303)

(2,303)

Total comprehensive income for the year

  - 

  - 

  - 

(2,303)

(2,303)

Transactions with owners, recorded directly to equity






Shares issued in the year

185

2,220



2,405

Share options exercised

3

24



27

Cost of issue to share premium


(177)



(177)

Equity settled share based payment transactions



106

106

Total contributions by and distributions to the owners

188

2,067

  - 

106

2,361

Balance at 30 June 2020

1,549

22,779

464

(19,114)

5,678

 

SURFACE TRANSFORMS PLC

NOTES

 

1.    Accounting policies

 

The interim financial statements are the responsibility of the Directors and were authorised and approved by the Board of Directors for issuance on 10 September 2021.

 

Basis of preparation

The Company is a public limited liability Group incorporated and domiciled in England & Wales.  The financial information is presented in Pounds Sterling (£) which is also the functional currency.  The Company's accounting reference date is 31 December.

 

These interim condensed financial statements are for the six months to 30 June 2021. They have not been prepared in accordance with IAS 34, Interim Financial Reporting that is not mandatory for UK AIM listed companies, in the preparation of this half-yearly financial report. While the financial information included has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), as adopted by the European Union (EU), these interim results do not contain sufficient information to comply with IFRS.  

 

These interim results for the period ended 30 June 2021, which are not audited; do not comprise statutory accounts within the meaning of section 435 of the Companies Act 2006.

 

Full audited accounts of the Company in respect of the year ended 31 December 2020, which received an unqualified audit opinion and did not contain a statement under section 498(2) or (3) (accounting record or returns inadequate, accounts not agreeing with records and returns or failure to obtain necessary information and explanations) of the Companies Act 2006 and have been delivered to the Registrar of Companies.

 

The accounting policies used in the preparation of the financial information for the six months ended 30 June 2021 are in accordance with the recognition and measurement criteria of IFRS as adopted by the EU and are consistent with those which will be adopted in the annual statutory financial statements for the year ending 31 December 2021.

Going concern

The financial statements have been prepared on a going concern basis which the Directors believe to be appropriate.  The Company incurred a net loss of £1915k during the period however the Directors are satisfied, based on detailed cash flow projections and after the consideration of reasonable sensitivities, that sufficient cash is available to meet the Company's needs as they fall due for the foreseeable future and at least 12 months from the date of authorising the accounts. The detailed cash flow assumptions are based on the company's annual budget, prepared and approved by the Board, which reflects a number of key assumptions including revenue growth, underpinned by current pipeline; customer compliance with payment terms; other receipts of a value and timing consistent with previous years. These forecasts also include the impacts of the Covid situation, and the recent fund raise which has increased cash balances.

The current COVID-19 situation is expected to continue to impact operations throughout 2021. In addition, the company has taken cash protection measures in order to preserve working capital until the situation has been resolved. The fundraise has however delivered the headroom required to give comfort over going concern.

The Directors believe that the Company is well placed to manage its business risks successfully despite the current uncertain economic outlook.  After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future.  Accordingly, they continue to adopt the going concern basis in preparing the interim report and accounts.

Leases and right of use assets

The company assesses whether a contract is or contains a lease at inception of the contract. A lease conveys the right to direct the use and obtain substantially all the economic benefits of an identified asset for a period of time in exchange for consideration.

 

A right of use asset and corresponding lease liability are recognised at commencement of the lease. The lease liability is measured at the present value of the lease payments, discounted at the rate implicit in the lease, or if that cannot be readily determined, at the lessee's incremental borrowing rate specific to the term, country, currency and start date of the lease.

 

The lease liability is subsequently measured at amortised cost using the effective interest rate method. The right of use asset is initially measured at cost, comprising: the initial lease liability; any lease payments already made less any lease incentives received; initial direct costs. The right of use asset is subsequently depreciated on a straight-line basis over the shorter of the lease term or the useful life of the underlying asset. The right of use asset is tested for impairment if there are any indicators of impairment.

Leases of low value assets and short-term leases of 12 months or less are expensed to the income statement, as are variable payments dependent on performance or usage, 'out of contract' payments and non-lease service components.

Segmental reporting

Due to the nature of the business the Company is currently focused on building revenue streams from a variety of different markets.  As there is only one manufacturing facility, and as this has capacity above and beyond the current levels of trade, there is no requirement to allocate resources to or discriminate between specific markets or products.  As a result, the Company's chief operating decision maker, the Chief Executive, reviews performance information for the Company as a whole and does not allocate resources based on products or markets. In addition, all products manufactured by the Company are produced using similar processes. Having considered this information in conjunction with the requirements of IFRS 8, as at the reporting date the board of Directors have concluded that the Company has only one reportable segment that being the manufacture and sale of carbon fibre materials and the development of technologies associated with this.

 

The Company considers it offers product technology namely carbon fibre re-enforced ceramic material, which is machined into differing shapes depending on the intended purpose of the end user.

Critical accounting estimates and judgements

The preparation of financial statements in conformity with adopted IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. In considering key judgements, management have considered revenue recognised over time as judgement however this is not material in current period. See revenue recognition accounting policy for further details.

Key judgements assessed by management are as follows:

Research and development expenditure

The Board considers the definitions of research and development costs as outlined in IAS 38:  Intangible Assets when determining the correct treatment of costs incurred.  Where such expenditure is technically and commercially feasible, the Company intends and has the technical ability and sufficient resources to complete development, future economic benefits are probable and if the Company can measure reliably the expenditure attributable to the intangible asset it is treated as development expenditure and capitalised on the statement of financial position.

In considering whether an item of expenditure meets these criteria, the Board applies judgement in determining when the items are technically and commercially feasible.

Deferred tax

Judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with an assessment of the effect of future tax planning strategies.  At present management have not recognised deferred tax assets above the value of the deferred tax liability recognised, on the basis that future taxable profits are possible, not probable.

There has been a deferred tax asset recognised for £159k in current year on the basis that the deferred tax liabilities of £159k could be offset by deductible differences per IAS 12.28. Further information regarding the level of unrecognised deferred tax is included in note 16.

Management do not consider there to be any significant estimates included in the accounts which have a significant risk of causing a material adjustment to carrying amount of assets and liabilities within the next financial year.

Revenue recognition

Revenue arises primarily from the provision of carbon ceramic brake discs.

To determine whether to recognise revenue, the company follows a 5-step process:

1. Identify the existence of a contract with a customer

2. Identify the separable performance obligations

3. Determine an appropriate transaction price for the contract

4. Allocate the transaction price to the performance obligations

5. Recognise revenue either at a point in time, or over time, dependent on how the obligation is satisfied.

The majority of revenue is currently recognised at a point in time, when the control of the goods has passed to the buyer (usually on dispatch of the goods). These contracts contain only one performance obligation being the provision of the specified goods. 

The company is beginning to enter contracts (notably OEM 8), which have a number of separable elements included as part of the provision of pre-production services to the customer.  For such contracts where it has been determined that a good or service is being transferred, the performance obligations which are capable of being distinct must first be identified and then an assessment made of whether the identified performance obligations are distinct in the context of the contract. Judgement is exercised in making this assessment and is driven by what the customers expectation of goods and services to be received are.

When transferring a good or service to the customer the revenue recognition point is determined based on whether the control of the good or service is transferred over time or at a point in time. Where the customer receives and consumes benefits simultaneously over the period of the performance revenue is recognised over time whereas when the service is transferring a good at a point in time the revenue is recognised at that time. Where revenue is recognised on an over time basis, the Company uses a percentage of completion model to recognise the appropriate revenue in the year. This percentage of completion is a judgement based on time booked to the contract.

 

 

2.    Taxation

 

Analysis of credit in the period




Six months

Six months

Twelve Months




ended

ended

ended




30-Jun

30-Jun

31-Dec




2021

2020

2020




£'000

£'000

£'000




(unaudited)

(unaudited)

(unaudited)

UK Corporation tax











Adjustment in respect of prior years R&D tax allowance

(23)

  - 

  14







R&D tax allowance for current period

  300

  276

  600










277

276

614

 

The effective rate of tax for the period/year is lower than the standard rate of corporation tax in the UK of 20 per cent, principally due to losses incurred by the Company.

 

The potential deferred tax asset relating to losses has not been recognised in the financial statements because it is not possible to assess whether there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.

 

 

3.    Loss per share

Basic

2021

2020

2020

 

 

 

Loss per ordinary share is based on the Company's loss for the financial period of £1,298k (30 June 2020: £1,175k loss; 31 December 2020: £2,301k loss). The weighted average number of shares used in the basic calculation is 185,204,922 (30 June 2020: 142,650,681; 31 December 2020: 149,013,664).

 

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 share options would have the effect of reducing the loss per ordinary share and is therefore not dilutive under the terms of International Accounting Standard 33 "Earnings per share".

 

4.    Segment reporting

 

Due to the start-up nature of the business the Company is currently focused on building revenue streams from a variety of different markets.  As there is only one manufacturing facility, and as this has capacity above and beyond the current levels of trade, there is no requirement to allocate resources to or discriminate between specific markets or products.  As a result, the Company's chief operating decision maker, the Chief Executive, reviews performance information for the Company as a whole and does not allocate resources based on products or markets. In addition, all products manufactured by the Company are produced using similar processes. Having considered this information in conjunction with the requirements of IFRS 8, as at the reporting date the Board of Directors has concluded that the Company has only one reportable segment that being the manufacture and sale of carbon fibre materials and the development of technologies associated with this.

 

The Company considers it offers product technology namely carbon fibre re-enforced ceramic material which is machined into different shapes depending on the intended purpose of the end user.

 

Revenue by geographical destination is analysed as follows:

 



6m to 30th June

6m to 30th June

12m to 31st December



2021

2020

2020



£'000

£'000

£'000

United Kingdom


479

79

487

Rest of Europe


253

410

569

United States of America


353

372

806

Rest of World


122

41

90

 

 

 

 

 

 

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