Half Yearly Report

RNS Number : 5146T

Surface Transforms PLC

13 December 2012

 



Surface Transforms plc

Half-year financial results for the six months ended 30 November 2012

14 December 2012

Half-year financial results for the six months ended 30 November 2012

Surface Transforms plc, manufacturers of carbon fibre reinforced ceramic (CFRC) materials, announces its half-year financial results for the six months ended 30 November 2012.

Financial and business highlights:

·              Turnover increased by 19.1% to £405k (2011: £340k)

·              Losses before tax and exceptional restructuring costs reduced to £429k (2011: £433k)

·              Losses after tax, before exceptional restructuring costs, £298k (2011: £273k)

·              EBITDA reduced to £192k (2011: £201k)

·              Cash at 30 November 2012 was £391k equivalent to approximately 1.22 pence per share (2011: £655k)

For enquiries, please contact:

Surface Transforms plc
Kevin Johnson, CEO	0151 356 2141
David Bundred, Chairman	07785 388 848
Seymour Pierce Limited (Nomad & Broker)	020 7107 8000
Guy Peters / David Foreman - Corporate Finance
Paul Jewell - Corporate Broking

For further Company details visit www.surface-transforms.com.

CHAIRMAN'S STATEMENT

It is encouraging to report that the central strategy of Surface Transforms plc ("Surface Transforms" or the "Company" continues to be implemented, albeit at a pace slower than originally planned

·     The Company is focused on the high performance automotive and lighter aircraft brake markets

·     Market introduction in automotive has begun both in the retrofit market and with the specialist high performance car manufacturers. This will then progress into limited edition OEM's and finally into volume production

·     Management believes its products to be technically superior to competitor products but knows that superior technical performance alone is not enough for commercial success. The strategy is to be cost competitive, knowing what this means in terms of selling prices and margins, and the Company has clear plans to execute  to achieve this target

·     The aircraft brake market takes longer to develop but is ultimately more secure in revenue terms. The Company has a long standing technical and development contract with a major aerospace OEM with good progress now being made

In respect to growth it is pleasing to report a continuing 19.1% increase in sales between the first half of FY 12 and first half FY13. However this number is still disappointing to the Board as growth had been expected to be higher; sales were negatively impacted by a brake system technical problem - now resolved - which led to a temporary reduction in deliveries to the retrofit automotive brake market for two months.

The Company's road car products now have over 1 million miles of road miles experience and therefore system technical problems, of this nature, are increasingly rare. As cumulative road miles continues to increase, confidence rises that the Company has now seen all combinations of potential technical problems. Management reacted promptly, solved the problem quickly and there has been no damage to relationships or reputation.

The relationship with our key distributor retrofit partners continues to flourish with range additions - notably Porsche and Ferrari - on target for the new season. Therefore, in addition to "no more technical problems", the Company expects seasonally adjusted growth in road cars to accelerate in the second half of the financial year.

In aircraft brakes, our long term development project is nearing successful conclusion, with, hopefully, one final round of testing needed before the Company can move into the commercialisation phase.

The Board believes that there is a very strong correlation between the potential demand curve for the Company's products and the price at which those products can be delivered. The Board believes that as the price of discs is reduced, the addressable market will increase many times over.  Therefore, as reported in the full year statement, the Board is now heavily focused on reducing production costs and it is pleasing to report that this project is on target. The Company is confident that, over time, it can compete on cost with its bigger competitor, the aim being to approximately halve production costs over a 3 year period. The Company has identified a number of projects that will enable it to achieve these cost reductions, some of which will require further working capital. Whilst it is possible that the Company could undertake these projects without recourse to further finance, the Directors believe that it would be more prudent to raise further equity finance in the near future to support this programme and to enable the Company to commence the necessary projects as soon as practicable. Consequently the Directors are in discussions with potential investors with a view to raising a minimum of £300,000 and up to £1 million of new equity. If and when these discussions are finalised, it is the Directors' intention to allow all shareholders some ability to participate in the fundraising at the same price. There is, however, no guarantee that any such equity finance will be forthcoming from the potential investors with whom the Company is currently in discussions. The Company also continues to be in discussion with local enterprise authorities to support the cost reduction and expansion plans with incentives and grants.

FINANCIAL REVIEW

In the 6 months to 30 November 2012, revenues were £405k (2011: £340k) which was 19.1% higher than last year.

Losses after taxation before exceptional restructuring costs were slightly higher at £298k (2011: £273k) although EBITDA at £192k (2011: £201k) improved over the period.

The Company had a cash balance of £391k (2011: £655k)

Loss per share was 1.06p (2012: 0.85p)

Exceptional items of £44k relating to exceptional costs following management changes in the period. These changes followed increasing focus on the automotive section.

The Company has taken out a 4 year loan of £400k to fund the expenditure of installing the new CVI furnace and working capital.

In the 2012 full year statement the Company said that the immediate management objective was to achieve a cash break even in this financial year. This remains an attainable target as the Company grows but now this is not expected to happen in the financial year to May 2013.

.

OUTLOOK

Surface Transforms is clearly progressing the commercialisation of its technology and the expectation is of accelerating sales growth over 2012. The Company is addressing a number of strategic commercial opportunities and announcements will be made when they are realised.

David Bundred

Chairman

14^th December 2012

SURFACE TRANSFORMS PLC

STATEMENT OF COMPRHENSIVE INCOME ( unaudited )

for THE six months ended 30 November 2012 

			Six months ended 30-Nov		Six months ended 30-Nov		Year ended 31-May
			2012		2011		2012
	Note		£'000's		£'000's		£'000's
Revenue			405		340		1,001
Cost of sales			(165)		(119)		(369)
Gross profit			240		221		632
Administrative expenses:
Before research costs			(353)		(317)		(638)
Research costs			(379)		(410)		(807)
Total administrative expenses			(732)		(727)		(1,445)
Other operating income			100		72		198
Operating loss			(392)		(434)		(615)
Financial income			1		2		4
Financial expenses			(38)		(1)		(27)
Loss before tax			(429)		(433)		(638)
Taxation	2		131		160		161
Loss for the period			(298)		(273)		(477)
Exceptional items			(44)		-		-
Total comprehensive income for the period			(342)		(273)		(477)
Loss per ordinary share
Basic and diluted		3	(1.06p)		(0.85p)		(1.50p)

SURFACE TRANSFORMS PLC

BALANCE SHEET ( UNAUDITED)

AS AT 30 NOVEMBER 2012

	As at		As at		As at
	30-Nov		30-Nov		31-May
	2012		2011		2012
	£'000's		£'000's		£'000's
Non-current assets
Property, plant and equipment	523		310		288
Total non current assets	523		310		288
Current assets
Inventories	411		460		404
Trade and other receivables	296		439		357
Cash and cash equivalents	391		655		547
Total current assets	1,098		1,554		1,308
Total assets	1,621		1,864		1,596
Current liabilities
Other interest bearing loans and borrowings	(183)		(84)		(89)
Trade and other payables	(234)		(342)		(298)
Total current liabilities	(417)		(426)		(387)
Non-current Liabilities
Other interest bearing loans and borrowings	(447)		(193)		(155)
Total liabilities	(864)		(619)		(542)
Net assets	757		1,245		1,054
Equity
Share capital	321		319		319
Share premium account	7,330		7,305		7,305
Other reserves	464		464		464
Retained deficit	(7,358)		(6,843)		(7,034)
Total equity attributable to equity shareholders of the Company	757		1,245		1,054

SURFACE TRANSFORMS PLC

STATEMENT OF Cash flowS (UnAudited)

for THE six months ended 30 November 2012

	Six Months Ended		Six Months Ended		Year ended
	30-Nov		30-Nov		31-May
	2012		2011		2012
	£'000's		£'000's		£'000's
Cash flows from operating activities
Loss for the period	(342)		(273)		(477)
Adjusted for:
Depreciation charge Fixed Asset Disposal	40 -		34 -		67 1
Equity settled share-based payment expenses	18		27		41
Financial income	(1)		(2)		(4)
Financial expenses	38		1		27
Taxation	(131)		(160)		(161)
	(378)		(373)		(506)
Changes in working capital
Increase in inventories	(7)		(156)		(99)
Decrease in trade and other receivables	61		165		247
(Decrease)/Increase in trade and other payables	(64)		28		(17)
	(388)		(336)		(375)
Finance income received	1		2		4
Finance expenses paid	(38)		(1)		(27)
Taxation received	131		160		161
Net cash used in operating activities	(294)		(175)		(237)
Cash flows from investing activities
Acquisition of property, plant and equipment	(275)		(53)		(65)
Net cash used in investing activities	(275)		(53)		(65)
Cash flows from financing activities
Proceeds from issue of share capital	27		-		-
Proceeds from new borrowings	437		274		285
Payment of borrowings	(51)		(7)		(51)
Net cash from financing activities	413		267		234
Net increase in cash and cash equivalents	(156)		39		(68)
Cash and cash equivalents at the beginning of the period	547		615		615
Cash and cash equivalents at the end of the period	391		654		547

SURFACE TRANSFORMS PLC

STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

FOR THE SIX MONTHS TO 30 NOVEMBER 2012

		Share Capital	Share premium account	Capital reserve	Retained earnings	Total
For the six months to 30 November 2012
		£'000's	£'000's	£'000's	£'000's	£'000's
Balance at 31 May 2012		319	7,305	464	(7,034)	1,054
Loss for the period		-	-	-	(342)	(342)
Total comprehensive income for the period		319	7,305	464	(7,376)	712
Transactions with owners, recorded directly to equity Shares issues in year		2	25	-	-	27
Equity settled share based payments		-	-	-	18	18
Total contributions by and distributions to the owners		2	25	-	18	45
Balance at 30 November 2012		321	7,330	464	(7,358)	757
		Share Capital	Share premium account	Capital reserve	Retained earnings	Total
For the six months to 30 November 2011
		£'000's	£'000's	£'000's	£'000's	£'000's
Balance at 31 May 2011		319	7,305	464	(6,598)	1,490
Loss for the period		-	-	-	(273)	(273)
Total comprehensive income for the period		319	7,305	464	(6,870)	1,217
Transactions with owners, recorded directly to equity
Shares issued in the period		-	-	-	-	-
Equity settled share based payments		-	-	-	27	27
Total contributions by and distributions to the owners		-	-	-	27	27
Balance at 30 November 2011		319	7,305	464	(6,843)	1,244
		Share Capital	Share premium account	Capital reserve	Retained earnings	Total
For the year to 31 May 2012
		£'000's	£'000's	£'000's	£'000's	£'000's
Balance at 31 May 2011		319	7,305	464	(6,598)	1,490
Loss for the year		-	-	-	(477)	(477)
Total comprehensive income for the year		319	7,305	464	(7,075)	1,013
Transactions with owners, recorded directly to equity
Equity settled share based payments		-	-	-	41	41
Total contributions by and distributions to the owners		-	-	-	41	41
Balance at 31 May 2012		319	7,305	464	(7,034)	1,054

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 14 December 2012.

Basis of preparation

In the condensed consolidated half-yearly financial statements, the term 'Company' refers to Surface Transforms plc, a company incorporated in the United Kingdom.  These condensed consolidated half-yearly financial statements comprise the Company and its subsidiaries as detailed in note 6 (together referred to as 'the Group' or 'Surface Transforms').  The financial statements of the Group for the six months ended 30 November 2012 are available from the Company's website www.surface-transforms.com.

These financial statements have not been prepared in accordance with IAS 34 "Interim Financial Reporting".  They do not include all the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Company for the year ended 31 May 2012.

The comparative figures for the financial year ended 31 May 2012 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The accounting policies and presentation used in the preparation of these condensed consolidated half-yearly financial statements are consistent with those used in the preparation of the Company's published financial statements for the year ended 31 May 2011.

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 Managing Director.

The Board has reviewed the requirements of IFRS 8, including consideration of what results and information the Managing Director reviews regularly to assess performance and allocate resources, and concluded that, as under IAS 14, 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, operating costs and assets are reviewed at a consolidated level.

Estimates

The preparation of half-yearly financial statements requires management to make judgements, 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 judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 May 2012.

Seasonality of operations

The Directors anticipate that the business will return to its normal historical trend with activity in the second half of this financial year being considerably higher than that of the first half. This trend is due to a number of key contracts normally maturing in the second half of the financial year.

Going concern

The financial statements have been prepared on a going concern basis which the Directors believe to be appropriate.  Whilst the Company incurred a net loss of £342k during the period, the Directors are satisfied that sufficient cash is available to meet the Company's liabilities as and when they fall due for at least 12 months from the date of signing the half yearly report.  In addition revenues are expected to continue to increase in the coming periods resulting in the Company becoming profitable in due course.

2          Taxation

Analysis of credit in the period

	Six months ended	Six months ended	Year ended
	30-Nov	30-Nov	31-May
	2012	2011	2011
	£'000's	£'000's	£'000's
UK Corporation tax
Current tax on income for the period	-	-	-
Research and development tax repayment	131	160	161
	131	160	161

The effective rate of tax for the period/year is lower than the standard rate of corporation tax in the UK of 25.67 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

	Six months ended	Six months ended	Year ended
	30-Nov	30-Nov	31-May
	2012	2011	2012
	Pence	Pence	Pence
Loss per ordinary share:
Basic and diluted	(1.06)	(0.85)	(1.50)

Loss per ordinary share is based on the Company's loss for the financial period of £342k (30 November 2011: £273k; 31 May 2012: £477k). The weighted average number of shares used in the basic calculation is 32,141,236 (30 November 2010: 31,885,422; 31 May 2011: 31,885,422). 

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 focussed on building revenue streams from a variety of markets.  As there is only one manufacturing facility and 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 CEO, 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 ceramic products.

	Total
Period ended 30 November 2012	£
Segment revenues	405
Operating expenses	(797)
Results from operating activities	(392)
Net finance costs	(37)
Loss before tax	(429)
Assets
Segment assets	757
	Total
Period ended 30 November 2011	£'000's
Segment revenues	340
Operating expenses	(774)
Results from operating activities	(434)
Net finance costs	1
Loss before tax	(433)
Assets
Segment assets	1,245

5.         Dividends

The Directors are not proposing the payment of a dividend in respect of the six months ended 30 November 2012.

6.         Subsidiary companies

The following subsidiary companies were incorporated by Surface Transforms Plc on 8 May 2009:

-           ST Aerospace Limited

-           ST Automotive Ceramic Limited

-           ST Defence Limited

-           ST Racing Limited

None of these companies have traded since their incorporation.

 

END

 

 

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