28 September 2020
Surface Transforms plc.
("Surface Transforms" or "the Company")
Half-year financial results for the six months ended 30 June 2020
Surface Transforms (AIM:SCE) manufacturers of carbon fibre reinforced ceramic materials, is pleased to announce its half-year financial results for the six months ended 30 June 2020.
Financial highlights:
- |
Revenue increased by 55% to £902k (H1-2019: £583k)
|
- |
Gross profit increased by 72% to £590k (H1-2019: £343k)
|
- |
Loss before tax decreased to £1,451k (H1-2019: £1,525k)
|
- |
Loss after tax increased to £1,175k (H1-2019: £837k) partially reflecting inclusion of two R&D tax credits in the comparable prior period ended June 2019
|
- |
Cash at 30 June 2020 was £2,019k (31 December 2019: £770k), to which can be added £334k of R&D tax credit received in September 2020.
|
- |
Capital expenditure on property, plant and equipment of £277k (H1-2019: £32k) mainly relating to the installation of OEM Production Cell One
|
- |
Successful equity placing and oversubscribed open offer raising £2,206k (net of expenses)
|
Sales and Operational Highlights:
- |
Post balance sheet date, awarded a contract with a global automotive vehicle manufacturer (described as OEM 8) with estimated lifetime value of approximately £27.5 million
|
- |
£5m lifetime value contract awarded from Koenigsegg on the recently launched Gemera car
|
- |
Continuing delays on start of production (SOP) on the Aston Martin Valkyrie car
|
- |
Continuing progress on testing with OEM 3, OEM 1 and a number of other potential customers, some of whom have not tested Surface Transforms products before
|
- |
Increasing dialogue with OEM's for prospective electric vehicle (EV) projects
|
- |
Maintained production and sales throughout the Covid 19 lockdown period
|
- |
All furnaces and machine tools in the new OEM Production Cell One have successfully operated. Task in H2 is to balance the overall system and demonstrate repeatable volume production
|
Outlook
Despite the Covid 19 lockdown, trading has been better than expected. As a result, the Company reiterates that it now anticipates current FY 20 revenues will be approximately £2.0m.
The OEM 8 contract win increases sales expectations by over £3m in 2021 and £8m in 2022 (and the following two years). As recently announced, given this contract as well as the expectation of further, as yet unspecified, contract awards, the Company is investing in manufacturing support headcount and other costs over the next three years, which will progressively add approximately £2m to annual overheads in 2022 and thereafter.
Consequently, the Company reiterates that it is now forecasting positive profits after tax (including receipt of the R&D tax credit), a year earlier than previously announced, in 2021 and positive operating profit, before interest and tax, in 2022.
The Company continues to expect to announce further contract awards over the next six months.
Summary
During the period the Company accelerated its progress to becoming a profitable mainstream automotive supplier of carbon ceramic brake discs. This continued progress was achieved against the most difficult economic and operational conditions in recent memory.
Finally, I would like to conclude by recording the Board's appreciation of the outstanding contribution by all members of the team, particularly in the context of the Covid 19 pandemic. Thank You!
David Bundred
Chairman
For enquiries, please contact:
Surface Transforms plc.
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|
Kevin Johnson, CEO Michael Cunningham, CFO David Bundred, Chairman
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+44 151 356 2141 |
Zeus Capital Limited (Nominated Adviser and Joint Broker)
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+44 203 829 5000 |
David Foreman / Dan Bate/ Jordan Warburton (Corporate Finance) Dominic King (Corporate Broking)
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|
finnCap Ltd (Joint-Broker)
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+44 20 7220 0500 |
Ed Frisby / Giles Rolls (Corporate Finance) Richard Chambers (Corporate Broking)
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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 period increased to £902k despite the Covid 19 pandemic occurring within the period. The growth was fuelled primarily by increased retrofit sales, which held up strongly during the pandemic. OEM sales were also higher in the period and near OEM sales broadly flat compared with the six months to June 2019.
Gross profit increased to £590k (H1-2019: £343k) and gross margin was 65.4% (H1-2019: 58.8%). The increase in margin was due to both better labour productivity and purchasing of raw materials, and is sustainable. Whilst future selling prices will fall, as volumes increase, this will be offset by further production efficiencies being generated as OEM Production Cell One becomes fully operational.
Administrative expenses rose by £173k to £928k (H1-2019: £755k) due in large part to some increased salary costs.
Research expenses increased by £149k to £1,212k (H1-2019: £1,063k) reflecting an increase in the number of customer projects.
The R&D tax credit reduced by £412k to £276k (H1-2019: £688k) followinga change in accounting policy in 2019. Previously, the tax credit was recognised when received, but is now accrued in the year to which the tax credit relates. This transition led to the inclusion of two tax credits in the prior period. It had no impact on the quantum or timing of the cash receipt. As Surface Transforms advances into profitability, it is worth noting that the Group has substantial tax losses carried forward.
Within the statement of financial position, property, plant and equipment increased by a net £70k to £5,588k (December 2019: £5,518k) being capital expenditure of £277k in OEM Production Cell One offset by increased depreciation of £207k. Receivables fell by £368k to £950k partially reflecting the reversal of late customer payments noted in our financial results for the seven month period ended 31 December 2019. Within this June 2020 total, trade debtors were £185k and the provision for R&D tax credit was £596k, of which £334k was received in September 2020. Inventories fell by £85k to £921k (December 2019: £1,006k). Notwithstanding this welcome reduction, the Company still suffers from minimum order quantities on key input materials, disproportionate to historic sales levels; thus as sales increase, inventories should not rise at the same rate and the ratio of inventory to sales is therefore expected to improve.
The Company had also taken advantage of HMRC support on PAYE time to pay to improve cash flow during the coronavirus outbreak. At the balance sheet date, Surface Transforms had authorised excess PAYE payments of £246k due. These were settled in full in July.
In the period, the Company raised £2,206k after fees in an over-subscribed equity placing and open offer.
Progress with potential OEM customers
Surface Transforms is undertaking testing on a number of projects for OEMs, including for both existing customers and others who have not tested our products before. The Company believes that it is not commercially appropriate to provide further details of these projects in advance of contract award, but does note that whilst the Covid 19 lockdown has impacted almost all project timings and start of production (SOP), the implications of which have previously been disclosed, the tests are validating the superior performance of Surface Transforms' discs across a range of key measures.
Consequently, the Company continues to expect that it will be able to announce further contract awards over the next six months.
- |
Electric Vehicles : It is also worth noting that approximately half of the current projects pipeline relate to electric vehicles (EVs). Whilst the generic advantages of carbon ceramic brakes are relevant to all our customers, irrespective of vehicle powertrain, the weight saving of carbon ceramic discs are particularly attractive to EV manufacturers given the weight of batteries and need for extended range. Additionally, EV manufacturers are concerned by the, admittedly small, but nonetheless high impact risk, of pads sticking to grey iron discs on EVs that make little use of the hydraulic brake - known as galvanic corrosion. Galvanic corrosion does not happen on carbon ceramic discs.
|
- |
Aston Martin Valkyrie : This project was forecast to launch in the period but for the customer's own reasons the SOP has been postponed. Despite this, the Company continues to expect this project to be a major element of Surface Transforms activity during 2021.
|
- |
OEM 8: Post balance sheet date, the Company announced that it had been selected to be the standard fit, sole supplier of the carbon ceramic brake disc on both axles of a new car to be manufactured by a global automotive manufacturer (hereinafter described as OEM 8). The contract is estimated to be worth £27.5m over the lifetime of the contract from 2021 to 2024. There is also the possibility that the contract will be extended beyond 2024.
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- |
Koenigsegg Gemera : The Company was selected as the tier one sole supplier of carbon ceramic discs on the Koenigsegg Gemera supercar during the period. The contract is valued in excess of £5m with SOP in mid 2022 and completing in mid 2027.
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- |
OEM 3: This customer has a unique environmental test that the Company has been endeavoring to pass for some time now. It is encouraging to report that considerable progress has been made over the last year with discussions on target models continuing.
As previously stated, the Company's generic policy is not to comment further, prior to contract award for any of its existing OEM development programmes. However, an exception has been made for OEM 3 given the uniqueness of their required environmental test.
|
- |
Retrofit and Near OEM : Sales into this segment continue to form the bedrock of current trading. In the period, progress in overseas retrofit markets - notably EU and the US - has been most encouraging. Additionally, the Company continues to seek out (and sometimes is sought out by) the small niche automotive vehicle manufacturers that we describe as "Near OEMs", frequently hardly known and often only building a handful of cars per year. Whilst, not transformational, our growing success in this small segment is important in providing both road mileage experience on our products (important to the mainstream OEMs) and, of course, short term cash generation.
|
Progress on Operations
Over the past three years the Company has invested over £6m to increase capacity from circa £4m sales, in what we describe as the small volume production cell (SVP) to an overall site capacity of circa £20m sales by building what we describe as OEM Production Cell One. The site has a footprint that will facilitate duplications of OEM Production Cell One, with the overall potential, in Knowsley and with further investment, of approximately 100,000 discs. The operational task has therefore been, and continues to be, to improve productivity and repeatability in SVP - the initial learning curve - whilst installing and bringing OEM Production Cell One into full operation thus providing the capacity required for the already awarded OEM contracts that commence in early 2021.
- |
Covid 19 Pandemic: The operational team has had to achieve the dual tasks above against the background of the Covid 19 lockdown; for example furnace supplier engineers could not visit the site to assist in installation debugging and trouble-shooting. The priority has, of course, been the health and well being of our staff. With their excellent co-operation, the Knowsley plant remained operational throughout the period, maintaining production whilst also progressing the installation of OEM Cell Production One, even with a high number of staff working from home. Against this background, the results, in both the SVP and OEM Production Cell One, were outstanding and bode well for the next stage of bringing OEM Production Cell One into balanced repeatable production.
|
- |
Capacity and Progress with OEM Production Cell One: The recent contract awards noted above, together with existing contracts will utilise approximately 60% of SVP and OEM Production Cell One capacity by early 2022. All furnaces and machine tools in the new OEM Production Cell One have operated successfully; indeed, for cost and superior technology reasons, some of the furnaces are currently contributing to SVP production needs. Clearly there have been some Covid 19 related delays but not to the overall detriment of the project. The task is now to balance overall system performance and demonstrate repeatable volume production. The timetable on completing this task has been tightened since the OEM 8 contract award, which has a shorter period between nomination and SOP than Surface Transforms has historically seen. The resultant accelerated plan includes bringing forward some capital expenditure as well as increasing headcount (assuming the SVP and OEM Production Cell One are operating at capacity). As previously announced, this increased headcount and certain other indirect overheads will progressively increase Group costs up to a steady-state level of approximately £2m p.a. in 2022 and thereafter.
Nonetheless the Board and team are confident that the tasks can be accelerated with a repeatable optimised and balanced production capacity available when needed in 2021 and 2022.
|
- |
Cost reductions: The Company continues to see continuous cost reduction in manufacturing as a key ingredient for future success in the automotive industry. Not least because carbon ceramic brakes are currently an expensive item and further market size expansion (beyond cars over £50k retail price ) require lower costs. Prior to securing the Knowsley plant, the Company set itself the task of halving the then production price. This task is achieved with OEM Production Cell One production. However, the Company will not rest on that laurel with the next stage already in full planning, indeed in some areas already underway.
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- |
Environment : The team at Surface Transforms is proud that its products make a material contribution to a better planet; a longer life product that reduces carbon emissions through weight saving and being considerably less polluting by reducing the amount of brake dust during braking. Our task is to ensure that our production processes complement this product achievement. To this end we are determined to be a good neighbour, protecting the local environment, through constant control and measurement of emissions and have set objectives to continuously reduce our environmental footprint.
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Statement of Total Comprehensive Income
For the six months ended 30 June 2020
|
Six Months |
Six Months |
Seven Months |
Year |
|
Ended |
Ended |
Ended |
Ended |
|
30-Jun-20 |
30-Jun-19 |
31-Dec-19 |
31-Dec-19 |
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Unaudited |
Unaudited |
Audited |
Unaudited |
Revenue |
902 |
583 |
1,451 |
1,938 |
Cost of sales |
(312) |
(240) |
(583) |
(783) |
Gross profit |
590 |
343 |
868 |
1,155 |
|
|
|
|
|
Other income: |
|
|
|
|
Government grants* |
154 |
- |
- |
- |
|
|
|
|
|
Administrative expenses: |
|
|
|
|
Before research and development costs |
(928) |
(755) |
(1,063) |
(1,752) |
Research and development costs |
(1,212) |
(1,063) |
(1,502) |
(2,281) |
Total administrative expenses |
(2,140) |
(1,818) |
(2,566) |
(4,033) |
Operating loss |
(1,396) |
(1,475) |
(1,698) |
(2,878) |
|
|
|
|
|
Financial income |
- |
- |
1 |
2 |
Financial expenses |
(55) |
(50) |
(63) |
(109) |
Loss before tax |
(1,451) |
(1,525) |
(1,760) |
(2,985) |
Taxation |
276 |
688 |
443 |
1,131 |
Loss for the year after tax |
(1,175) |
(837) |
(1,317) |
(1,854) |
|
|
|
|
|
Total comprehensive loss for the year attributable to members |
(1,175) |
(837) |
(1,317) |
(1,854) |
|
|
|
|
|
Loss per ordinary share |
|
|
|
|
Basic and diluted |
(0.82)p |
(0.64)p |
(0.97)p |
(1.46)p |
* Government grants received relate to amounts received under the Coronavirus Job Retention Scheme
Statement of Financial Position
As at 30 June 2020
|
|
|
|
|
|
|
|
|
30-Jun-20 |
30-Jun-19 |
31-Dec-19 |
|
£'000 |
£'000 |
£'000 |
|
Unaudited |
Unaudited |
Audited |
Non-current assets |
|
|
|
Property, plant and equipment |
5,588 |
5,125 |
5,518 |
Intangibles |
162 |
198 |
175 |
|
5,750 |
5,323 |
5,693 |
Current assets |
|
|
|
Inventories |
921 |
1,161 |
1,006 |
Trade and other receivables |
950 |
889 |
1,318 |
Cash and cash equivalents |
2,019 |
1,554 |
770 |
|
3,89 0 |
3,604 |
3,094 |
Total assets |
9,64 0 |
8,927 |
8,787 |
|
|
|
|
Current liabilities |
|
|
|
Other interest bearing loans and borrowings |
(83) |
(13) |
(118) |
Loans associated with right of use assets |
(140) |
(137) |
(138) |
Trade and other payables |
(798) |
(465) |
(1,028) |
|
(1,021) |
(615) |
(1,284) |
Non-current liabilities |
|
|
|
Government grants |
(200) |
(200) |
(200) |
Loans associated with right of use assets |
(1,198) |
(1,240) |
(1,207) |
Other interest bearing loans and borrowings |
(471) |
(344) |
(476) |
|
(1,869) |
(1,784) |
(1,883) |
Total liabilities |
(2,890) |
(2,399) |
(3,167) |
Net assets |
6,750 |
6,528 |
5,620 |
|
|
|
|
Equity |
|
|
|
Share capital |
1,546 |
1,360 |
1,361 |
Share premium |
22,733 |
20,704 |
20,712 |
Capital reserve |
464 |
464 |
464 |
Retained loss |
(17,993) |
(16,000) |
(16,917) |
Total equity attributable to equity shareholders of the company |
6,750 |
6,528 |
5,620 |
Statement of Cash Flow
For the six months to 30 June 2020
|
Six Months |
Six Months |
Seven Months |
Year |
|
Ended |
Ended |
Ended |
Ended |
|
30-Jun-20 |
30-Jun-19 |
31-Dec-19 |
31-Dec-19 |
|
'000 |
'000 |
'000 |
'000 |
|
Unaudited |
Unaudited |
Audited |
Unaudited |
Cash flow from operating activities |
|
|
|
|
Loss after tax for the year |
(1,175) |
(837) |
(1,317) |
(1,854) |
|
|
|
|
|
Adjusted for: |
|
|
|
|
Depreciation and amortisation charge |
222 |
238 |
289 |
491 |
Equity settled share-based payment expenses |
96 |
67 |
106 |
161 |
Financial expense |
55 |
50 |
63 |
109 |
Financial income |
- |
- |
(1) |
(2) |
Taxation |
(276) |
(688) |
(442) |
(1,131) |
|
(1,078) |
(1,170) |
(1,302) |
(2,226) |
Changes in working capital |
|
|
|
|
Decrease/(increase) in inventories |
85 |
(52) |
157 |
103 |
Decrease/(increase) in trade and other receivables |
368 |
13 |
(501) |
(415) |
Increase/(decrease) in trade and other payables |
(229) |
77 |
443 |
640 |
|
(854) |
(1,132) |
(1,203) |
(1,898) |
Taxation received |
276 |
688 |
523 |
1,131 |
Net cash used in operating activities |
(578) |
(444) |
(680) |
(767) |
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
Acquisition of tangible and intangible assets |
(277) |
(32) |
(344) |
(653) |
Net cash used in investing activities |
(277) |
(32) |
(344) |
(653) |
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
Proceeds from issue of share capital, net of expenses |
2,206 |
1,793 |
9 |
1,802 |
Payment of finance lease liabilities |
(7) |
(29) |
(53) |
(58) |
Repayment/ proceeds from long term loans |
(40) |
(3) |
(25) |
234 |
Interest received |
- |
- |
1 |
2 |
Interest paid |
(55) |
(50) |
(63) |
(109) |
Net cash generated from financing activities |
2,104 |
1,711 |
(131) |
1,871 |
Net increase/ (decrease) in cash and cash equivalents |
1,249 |
1,235 |
(1,155) |
451 |
Cash and cash equivalents at the beginning of the period |
770 |
319 |
1,925 |
319 |
Cash and cash equivalents at the end of the period |
2,019 |
1,554 |
770 |
770 |
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 period |
|
|
|
(1,175) |
(1,175) |
Total comprehensive income for the period |
- |
- |
- |
(1,175) |
(1,175) |
Transactions with owners, recorded directly to equity |
|
|
|
|
|
Shares issued in the period |
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 as at 30 June 2020 |
1,546 |
22,733 |
464 |
(17,993) |
6,750 |
|
|
|
|
|
|
|
|
|
|
|
|
Statement of changes in equity |
|
|
|
|
|
For the six months ended 30 June 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Share capital |
Share premium account |
Capital reserve |
Retained loss |
Total |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
Balance as at 31 December 2019 |
1,237 |
19,034 |
464 |
(15,227) |
5,508 |
Comprehensive income for the year |
|
|
|
|
|
Loss for the year |
|
|
|
(837) |
(837) |
Total comprehensive income for the year |
- |
- |
- |
(837) |
(837) |
Transactions with owners, recorded directly to equity |
|
|
|
|
|
Shares issued in the year |
123 |
1,784 |
|
|
1,907 |
Cost of issue to share premium |
|
(114) |
|
|
(114) |
Equity settled share based payment transactions |
|
|
64 |
64 |
|
Total contributions by and distributions to the owners |
123 |
1,670 |
- |
64 |
1,857 |
Balance at 30 June 2019 |
1,360 |
20,704 |
464 |
(16,000) |
6,528 |
|
|
|
|
|
|
|
|
|
|
|
|
Statement of changes in equity |
|
|
|
|
|
For the s even month period ended 31 Dece mber 2019 |
|
|
|
|
|
|
Share capital |
Share premium account |
Capital reserve |
Retained loss |
Total |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
Balance as at 31 May 2019 |
1,360 |
20,704 |
464 |
(15,706) |
6,822 |
Comprehensive income for the year |
|
|
|
|
|
Loss for the period |
|
|
|
(1,317) |
(1,317) |
Total comprehensive income for the year |
1,360 |
20,704 |
464 |
(17,023) |
5,505 |
Transactions with owners, recorded directly to equity |
|
|
|
|
|
Share options exercised |
1 |
8 |
|
|
9 |
Cost of issue off to share premium |
|
|
|
|
- |
Equity settled share based payment transactions |
|
|
106 |
106 |
|
Total contributions by and distributions to the owners |
1 |
8 |
- |
106 |
115 |
Balance as at 31 December 2019 |
1,361 |
20,712 |
464 |
(16,917) |
5,620 |
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 28 February 2020.
Basis of preparation
Surface Transforms plc is a public limited liability company 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 2020 and have been prepared in accordance with IAS 34, 'Interim Financial Reporting' as adopted by the EU. They do not include all the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last consolidated financial statements as at and for the seven month period ended 31 December 2019.
These interim results for the period ended 30 June 2020, 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 period ended 31 December 2019, 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 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 2020 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 2020.
Revenue recognition
Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer (usually on dispatch of the goods), the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the Company and the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Government grants
Capital grants are initially recognised as deferred income and credited to the statement of total comprehensive income over the life of the asset to which it relates.
Grants received under the Governments Corona virus job retention scheme are recognised in the statement of total comprehensive income on a systematic basis over the period in which the Company recognises the related costs for which the grants are intended to compensate.
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 of 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; and any dilapidation or restoration 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
IFRS 8 "Operating Segments" requires that the segments should be reported on the same basis as the internal reporting information that is provided to, and regularly reviewed by, the chief operating decision-maker, whom the Group has identified as the CEO.
The Board has reviewed the requirements of IFRS 8, including consideration of what results and information the CEO reviews regularly to assess performance and allocate resources, and concluded that all revenue falls under a single business segment.
The Directors consider that the Group does not have separate divisional segments as defined under IFRS 8. The CEO assesses the commercial performance of the business based upon consolidated revenues; margins and operating costs and assets are reviewed at a consolidated level.
Estimates
The preparation of half-yearly financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these condensed consolidated half-yearly financial statements, the significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty are expected to be the same as those that will be adopted in the annual statutory financial statements for the year ending 31 December 2020.
Going concern
These interim financial statements have been prepared on a going concern basis|. Whilst the Group incurred a net loss of £1,175k during the period, the Group's forecasts and projections, taking into account reasonable possible changes in trading performance, show that the Group has sufficient financial resources, to meet the Group's liabilities as and when they fall due for a period of twelve months from the date of this statement.
2. Taxation
Analysis of credit in the period
|
Six months ended |
Six months ended |
S even Months ended |
|
30-Jun |
30-Jun |
31-Dec |
|
2020 |
2019 |
2019 |
|
£'000 (unaudited) |
£'000 (unaudited) |
£'000 (audited) |
|
|
|
|
UK Corporation tax |
|
|
|
|
|
|
|
Adjustment in respect of prior years R&D tax allowance |
- |
521 |
1 23 |
|
|
|
|
R&D tax allowance for current period |
276 |
167 |
3 20 |
|
|
|
|
|
276 |
688 |
4 43 |
|
|
|
|
The effective rate of tax for the period is lower than the standard rate of corporation tax in the UK of 20 per cent, principally due to losses incurred by the Group.
The significant reduction in tax in the six months to 30 June 2020 is due to the fact that in the six months to 30 June 2019 the Company changed its accounting policy to move from a cash basis for tax to an accruals basis. The £688k in the six months to 30 June 2019 therefore includes both the cash receipt relating to the year ended 30 May 2018 as well as the accrued tax credit for the six month period.
3. Loss per share
|
Six months ended |
Six months ended |
Seven Months ended |
|
30-Jun |
30-Jun |
31-Dec |
2020 (unaudited) |
2019 (unaudited) |
2019 (audited) |
|
|
Pence |
Pence |
Pence |
Loss per share: |
|
|
|
Basic and diluted |
(0 .84 ) |
(0.64) |
(0.97) |
Loss per ordinary share is based on the Company's loss for the financial period of £1,175k (30 June 2019: £837k loss; 31 December 2019: £1,317k loss). The weighted average number of shares used in the basic calculation is 140,650,681 (31 December 2019: 136,036,376; 30 June 2019: 130,711,912).
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
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:
|
Six Months Ended |
Six Months Ended |
Seven Months Ended |
|
30 J une 2020 |
30 June 2019 |
31 December 2019 |
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
£'000 |
£'000 |
£'000 |
|
|
|
|
United Kingdom |
79 |
172 |
963 |
Rest of Europe |
410 |
334 |
165 |
United States of America |
372 |
66 |
251 |
Rest of World |
41 |
11 |
72 |
|
902 |
583 |
1,451 |