Interim Results

Surface Transforms PLC 24 February 2004 24 February 2004 Interim results for the six months ended 30 November 2003 Surface Transforms plc, manufacturers of carbon fibre reinforced ceramic (CFRC) materials, announces its interim results for the six months ended 30 November 2003. Financial and business highlights: â€¢ Turnover increased by 66% to Â£175,481 (30 November 2002: Â£105,475) â€¢ Operating losses significantly reduced to Â£161,742 (30 November 2002: Â£797,272) â€¢ Increased cash balances of Â£319,464 (31 May 2003: Â£178,175) through improved trading and receipt of R&D tax credits â€¢ Two prestigious new contract wins with Dunlop Aerospace and the United States Air Force Research Laboratory â€¢ Sound progress made since the introduction of new business model to maximise commercial use of CFRC technology â€¢ Continued investment in developing proprietary technology Kevin D'Silva, Chairman of Surface Transforms, comments: 'The speed of progress since last September has been encouraging. The landmark aircraft brake agreement with Dunlop Aerospace ratified the commercial potential of the Company's CFRC technology and endorsed the effectiveness of our new business strategy. We now have in place most of the key elements that allow the Company to commence confidently the next phase of growth.' For enquiries please contact: Julio Faria Neil Boom Managing Director Managing Director Surface Transforms plc Gresham PR Ltd. 01928 735 498 020 7404 9000 Details of the Company's business and financial performance and its share price can be found on www.armshare.com which is accessed from the Armshare icon on www.surface-transforms.com. Chairman's Statement In the six months ended 30 November 2003, we made sound progress following a previously reported strategic review that led to a new business model aimed at maximising the commercial exploitation of our proprietary carbon fibre reinforced ceramic technology (CFRC). Following the review, we have successfully implemented a number of key changes addressing costs, management, staff, products, commercial strategy and sales. We are now pleased to report further progress towards our goal of exploiting the inherent flexibility of our technology and applying it to a broader range of applications in target markets. Our target markets embrace commercial and military aircraft brake systems, rocket motor systems, clutch applications in Formula 1, high performance and GT cars and a number of other industrial and defence applications. I am delighted that we have secured two notable aerospace contracts in the six months under review. These new contracts reflect Surface Transforms' progress both in the development of our technology and the management's commercial focus. As a result of new revenue streams and tighter cost controls, there has been a significant improvement in our financial position since the end of the previous period. Furthermore, we have begun to widen the Company's prospects in other CFRC applications. Shareholders will be updated on new prospects once contracts or significant developments have been negotiated. Financial results The Company's financial results have improved markedly from the comparable period last year. For the six months ended 30 November 2003, turnover increased by 66% to Â£175,481 (30 November 2002: Â£105,475). Operating losses were sharply lower at Â£161,742 (30 November 2002: Â£797,272). Losses after tax were considerably lower at Â£39,424 (30 November 2002: Â£794,037). The substantial improvement in after tax losses reflects R&D tax credits amounting to Â£119,685. The reduction in operating losses and the improvements in the Company's cash and working capital positions are a result of the successful execution of the new business model. Improved trading and the receipt of R&D tax credits have increased the cash balance at 30 November 2003 to Â£319,464 (31 May 2003: Â£178,175). The Company has no borrowings. Operating Activities AIRCRAFT BRAKES On 28 November 2003, a major development and licensing agreement was signed with Dunlop Aerospace, a global leader of aircraft braking systems and services to the aerospace industry. This contract is aircraft specific, and is the first planned application of the Company's CFRC technology within the global commercial aircraft industry. The contract also underscores the technical advantages that our CFRC technology can offer over rival technologies. Once brake development has been completed in partnership with Dunlop Aerospace, and if the CFRC brake becomes certified for the designated commercial airliner, this contract will allow Dunlop Aerospace to supply CFRC brakes manufactured under a 10-year licence agreement with Surface Transforms. We hope that this contract will be the first of many subsequent development and licensing agreements for the use of the Company's CFRC brake technology on a range of civil and military aircraft AEROSPACE COMPONENTS On 11 September 2003, Surface Transforms signed its first development contract with the United States Air Force Research Laboratory for the supply of development, prototype CFRC materials. The contract is worth initially US$50,000 and although the intended applications for the material supplied are confidential, CFRC materials have technical properties that potentially have considerable advantages when used in next generation military aircraft material, exhaust components and braking systems. Since signing this development contract, we have delivered our first extensive test reports to the USAF. AUTOMOTIVE The Company provides collaborative development and testing of CRFC brake discs to a leading European supplier of complete braking systems. It is expected that after the initial stages, this activity, if successful, may lead to a commercial cooperation to supply CFRC braking systems to leading automobile manufacturers in Europe. Progress will be reported once milestones and commercial agreements have been reached. TECHNOLOGY Surface Transforms continues to invest in expanding and developing its proprietary technology. One new patent application has been filed in recent months. In October 2003, a new, multi-phase research project was started, partly financed by the Business Link scheme. This project is to develop a new design combination for a road car brake disc and pad. Management The senior management team and board have worked together as a new team since September 2003, with Johannah Stretton joining in October as Financial Controller and Company Secretary. She has recently completed a comprehensive review of financial procedures, costs and cost control. Unusually for a small, listed company all five members of the board, both executive and non-executive, have extensive industrial and technical backgrounds correlating in part to the technology and operations of the Company. Each non-executive director occupies a lead mentoring role in each of three important aspects of the business. This style harnesses the considerable experience of the non-executive director directly to key management aspects of the Company without hindrance to the role of the executive management. Professor David Clark is able to provide the scientific direction for the Company as he is a world authority on composite materials exhibiting light weight and high energy dissipation capabilities. Peter Holland is responsible for the Business Development efforts focussing on achieving customer and marketing milestones and targets. I assist management with guidance on general operating and financial matters. Outlook The landmark agreement within the aircraft braking market ratifies the potential of the Company's CFRC technology and positions the business financially and commercially in order to commence the next phase of its expansion. The board has targeted the automotive brake, aerospace materials and anti ballistic products sectors as areas where the next collaborative development ventures will be made. At the same time we are continuing to seek further applications for our CFRC materials. The Company has earned an enviable reputation for being an attractive employer in the region. Our intention is to attract additional technical and industry-specific business development personnel to accelerate progress in the new target markets. In line with our improving financial resources, we have started an operational programme designed to reduce product processing time and improve our flexibility to meet the needs of customers. At Surface Transforms our priority is to ensure our CFRC technology always improves quality and adds value. Finally, the speed of progress within the Company since last September has been very encouraging. There are challenges ahead, but the confidence within the Company is based on the integrity and the positive approach of all its employees. I wish to thank them all. Kevin D'Silva Chairman SURFACE TRANSFORMS PLC PROFIT AND LOSS ACCOUNT FOR THE SIX MONTHS ENDED 30 NOVEMBER 2003 (Unaudited) (Unaudited) (Audited) Six months Six months Year ended ended ended Note 30 November 30 November 31 May 2003 2002 2003 1 As restated Â£ Â£ Â£ Turnover 175,481 105,475 239,755 Cost of sales (including exceptional items Â£Nil) year ended 31 May 1 (65,749) (251,593) (398,862) 2003:Â£293,048)) --------- ---------- ---------- Gross profit/(loss) 109,732 (146,118) (159,107) Distribution costs (693) (766) (2,552) Administrative expenses before development costs (256,289) (376,348) (617,644) Development costs (44,462) (274,040) (350,606) Other operating income 29,970 - - --------- ---------- ---------- Operating loss (161,742) (797,272) (1,129,909) Interest receivable and 2,633 3,235 6,677 similar income --------- ---------- ---------- Loss on ordinary activities before taxation (159,109) (794,037) (1,123,232) Taxation on loss on ordinary 2 119,685 - 158,850 activities --------- ---------- ---------- Loss on ordinary activities after taxation (39,424) (794,037) (964,382) Dividends paid and - - - proposed --------- ---------- ---------- Retained loss for the period (39,424) (794,037) (964,382) /year ========= ========== ========== Loss per ordinary share Basic and diluted 3 (0.42p) (9.46p) (10.86p) ========= ========== ========== The Company's operating loss arises from continuing operations. The Company has no recognised gains or losses in these periods/years other than those reported above and therefore no statement of total recognised gains and losses has been presented. SURFACE TRANSFORMS PLC BALANCE SHEET AS AT 30 NOVEMBER 2003 (Unaudited) (Unaudited) (Audited) As at As at As at 30 November 30 November 31 May 2003 2002 2003 Â£ Â£ Â£ Fixed assets Intangible assets 9,649 12,111 10,758 Tangible assets 77,254 124,311 97,893 ----------- ---------- ---------- 86,903 136,422 108,651 ----------- ---------- ---------- Current assets Stocks 79,330 139,388 70,068 Debtors 212,341 79,112 294,387 Cash at bank and in hand 319,464 533,878 178,175 ----------- ---------- ---------- 611,135 752,378 542,630 ----------- ---------- ---------- Creditors: Amounts falling due within one year (114,352) (118,349) (77,608) ----------- ---------- ---------- Net current assets 496,783 634,029 465,022 ----------- ---------- ---------- Net assets 583,686 770,451 573,673 =========== ========== ========== Capital and reserves Called up share capital 94,441 93,624 93,799 Share premium account 2,016,570 1,994,383 1,967,775 Other reserves 520,399 520,399 520,399 Profit and loss account (2,047,724) (1,837,955) (2,008,300) =========== ========== ========== Equity shareholders' funds 583,686 770,451 573,673 =========== ========== ========== RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS FOR THE SIX MONTHS ENDED 30 NOVEMBER 2003 (Unaudited) (Unaudited) (Audited) Six months Six months Year ended ended ended 30 November 30 November 31 May 2003 2002 2003 Â£ Â£ Â£ Loss for the period/year (39,424) (794,037) (964,382) New share capital issued (net of issue costs) 49,437 984,978 958,545 ---------- ---------- ---------- Net addition/(reduction) to shareholders' funds 10,013 190,941 (5,873) Opening shareholders' funds 573,673 579,510 579,510 ---------- ---------- ---------- Closing shareholders' funds 583,686 770,451 573,673 ========== ========== ========== SURFACE TRANSFORMS PLC CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30 NOVEMBER 2003 (Unaudited) (Unaudited) (Audited) Six months Six months Year ended ended ended 30 November 30 November 31 May 2003 2002 2003 Note Â£ Â£ Â£ Net cash outflow from operating activities 4 (69,050) (585,726) (917,597) ---------- ---------- ---------- Returns on investment and servicing of finance Interest received and similar 2,633 3,235 6,677 income ---------- ---------- ---------- Total returns on investments and servicing of finance 2,633 3,235 6,677 ---------- ---------- ---------- Taxation received 158,850 - - Capital expenditure Purchase of tangible fixed (581) (8,204) (9,145) assets Receipts from disposal of - - 100 fixed assets ---------- ---------- ---------- Total capital expenditure (581) (8,204) (9,045) ---------- ---------- Cash inflow/(outflow) before financing 91,852 (590,695) (919,965) Financing Issue of ordinary share capital (net of issue costs) 49,437 984,978 958,545 ---------- ---------- ---------- Total financing 49,437 984,978 958,545 ---------- ---------- ---------- Increase in cash in the period 5 141,289 394,283 38,580 /year ========== ========== ========== SURFACE TRANSFORMS PLC NOTES 1 Basis of preparation The interim financial statements have been prepared on the basis of the accounting policies set out in the Company's last Annual Report and Accounts. The comparative figures for the financial year ended 31 May 2003 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 unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. The interim report for the six months ended 30 November 2003, was approved by the Board on 23rd February 2004. Restatement of November 2002 figures During the year ended 31 May 2003, the directors decided, in accordance with FRS 18, 'Accounting policies' 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 period. 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 any period. Exceptional item Following Formula 1 regulatory changes introduced during the year ended 31 May 2003 which restricted the supply of products to that market, the directors decided to terminate all ongoing Formula 1 development. This resulted in a stock write down of Â£293,048 in that year. 2 Taxation Analysis of credit in the period/year (Unaudited) (Unaudited) (Audited) Six months Six months Year ended ended ended 30 November 30 November 31 May 2003 2002 2003 Â£ Â£ Â£ UK Corporation tax Current tax on income for the period - - - Research and development tax repayment 119,685 - 158,850 ----------- ------------ ---------- 119,685 - 158,850 =========== ============ ========== The effective rate of tax for the period/year of nil is lower than the standard rate of corporation tax in the UK of 30% due principally to losses incurred by the company. 3 Loss per share (Unaudited) (Unaudited) (Audited) Six months ended Six months ended Year ended 30 November 30 November 31 May 2003 2003 2002 Pence Pence Pence Loss per ordinary share: Basic (0.42) (9.46) (10.86) Diluted (0.42) (9.46) (10.86) =========== ============ ========== Loss per ordinary share is based on the Company's loss for the financial period of Â£39,424 (30 November 2002: Â£794,037; 31 May 2003: Â£964,382). The weighted average number of shares used in the basic calculation is 9,387,130 (30 November 2002: 8,397,875; 31 May 2003: 8,882,861). 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 would have the effect of reducing the loss per ordinary share and is therefore not dilutative under the terms of FRS14. 4 Reconciliation of operating loss to net cash outflow from operating activities (Unaudited) (Unaudited) (Audited) Six months Six months Year ended ended ended 30 November 30 November 31 May 2003 2002 2003 Â£ Â£ Â£ Total operating loss (161,742) (797,272) (1,129,909) Depreciation and amortisation charges 22,329 15,134 43,846 Profit on sale of fixed assets - - (100) (Increase)/decrease in stock (9,262) 198,783 268,103 Decrease/(increase) in debtors 42,881 (2,278) (58,703) Increase/(decrease) in creditors 36,744 (93) (40,834) ------------ ----------- ----------- Net cash outflow from operating activities (69,050) (585,726) (917,597) ============ =========== =========== 5 Reconciliation of net cash flow to movement in net funds (Unaudited) (Unaudited) (Audited) Six months Six months Year ended ended ended 30 November 30 November 31 May 2003 2002 2003 Â£ Â£ Â£ Increase in cash in the period/ 141,289 394,283 38,580 year ----------- ------------ ----------- Movement in net funds resulting from cash flows 141,289 394,283 38,580 Net funds at the start of the period/year 178,175 139,595 139,595 ----------- ------------ ----------- Net funds at the end of the period/ 319,464 533,878 178,175 year =========== ============ =========== This information is provided by RNS The company news service from the London Stock Exchange

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