Half-Yearly Results

RNS Number : 5676H

Surface Transforms PLC

24 February 2010

 



24 February 2010

Surface Transforms plc

(the "Company")

Half-yearly results for the six months ended 30 November 2009

Surface Transforms plc, manufacturers of carbon fibre reinforced ceramic (CFRC) materials, announces its half-yearly financial report for the six months ended 30 November 2009.

Financial and business highlights:

·     Turnover £254,776 ( 30 November 2008: £398,409);

·     Outstanding Order Bank currently stands at £475,343 of which £317,431 is for delivery before   31^st May 2010;

·     Losses after tax £274,117 (30 November 2008: £396,718); 

·     Fundraising of £410,000 net of expenses in July 2009 at 10 pence per share. Additional £80,000 fundraising for expanding the CVI process in December 2009, also at 10 pence per share; and

·     Cash at 30 November 2009 was £645,601 equivalent to approximately 2.7 pence per share (31 May 2009: £404,275 equivalent to 2.1 pence per share).

Commenting, Kevin D'Silva, Chairman said:

The Company continues to operate in a difficult economic climate with its main clients, both current and prospective, only just stabilising after a difficult twelve month period. In particular, sales to two of our commercial and racing automotive clients, with whom we have multi year supply contracts, have not yet returned to the forecasted sales levels. The new business relating to brakes for the development of a US prototype military vehicle has mitigated in part the full effects of the reduction in the commercial and automotive brake business.

Nevertheless the board now feels that despite these economic conditions the Company can increase its business revenues and reduce losses in the 2010 financial year ending May 2010 and continue to work towards breaking even in cash terms in subsequent years. The aircraft brakes development programme for a military aircraft continues and has considerable revenue generating prospects if and when the development is completed successfully.

For enquiries, please contact:

Surface Transforms plc                                   Seymour Pierce Limited (Nomad & Broker)

Kevin Johnson   0151 356 2141                           Nandita Sahgal  020 7 107 8000

Kevin D'Silva   07802 306956                             Christopher Wren

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

CHAIRMAN'S STATEMENT

During the six month period ending 30 November, 2009 the Company achieved Revenues of £254,776 (2008: £398,409) and Losses after taxation of £274,117 (2008:£396,718). This was against the background of a severe global recession and a sharp reduction in activity within the automotive sector.

The Company is focussed on winning new business in the aerospace and defence industries whilst it maintains its current lower automotive and racing brake sales until there is a recovery in this industry sector.

Highlights for the period were:

·     A fundraising of £416,706 net of expenses from existing shareholders in July 2009 at 10 pence per share. Furthermore an additional £80,000 fund raising for expanding the CVI process in December 2009, also at 10 pence per share, and which was subscribed to mainly by directors and management of the Company.

·     Continued development work with a US brake system supplier who has won a development contract to supply 20 prototype vehicles for the next generation of US military transport vehicles. Orders to date for this development project have been substantial. Half of these orders have been shipped within the period with the remainder scheduled for the second half of the year. The award of this development contract has reduced the impact of the downturn in the automotive commercial and racing automotive brake markets.

·     Award of a €245,000, two year development contract with Microturbo, a French company which is a world leader in turbojet engine manufacture.

·     Award of a £2.1 million, three year Collaborative R&D grant by the U.K. Technology Strategy Board (TSB).  The grant is expected to contribute £470,000 to reduce overheads over a three year period.

Financial Review

In the six month period to 30 November, 2009, revenue was £254,776 (2008: £398,409). Revenues were lower than those of the first six months of the previous financial year because of a reduction in business from the commercial and racing automotive sectors.

At 30 November, 2009 the Order Book, representing confirmed orders, was £301,296 and by 19 February, 2010 it had risen to £475,343 of which £317,431 is for delivery before 31^st May 2010.

Losses after taxation for the six month period were £274,117 (November 2008: £396,718). These include a non cash charge of £51,326 (2008: £43,098) relating to share based payments under IFRS 2.

Earnings per share was a loss of 1.26 pence (2008: loss 2.01 pence)

Capital expenditure was £18,929 (November 2008: £42,247)

The Company had a cash balance of £645,601 (May 2009: £404,274)

Shareholder Funds were £1,220,438 (November 2008: £1,419.249)

Board of Directors

Richard Gledhill joined the board during October 2009 and we welcome him to the Company. Richard has been a shareholder in the Company for the last two years and two of his private companies have been suppliers to the business for the past 7 years providing some machining and carbon graphitisation development services.

Outlook

The Company continues to operate in a difficult economic climate with its main clients, both current and prospective, only just stabilising after a difficult twelve month period. In particular, sales to two of our commercial and racing automotive clients, with whom we have multi year supply contracts, have not yet returned to the forecasted sales levels. The new business relating to brakes for the development of a US prototype military vehicle has mitigated in part the full effects of the reduction in the commercial and automotive brake business.

Nevertheless the board now feels that despite these economic conditions the Company can increase its business revenues and reduce losses in the 2010 financial year ending May 2010 and continue to work towards breaking even in cash terms in subsequent years. The aircraft brakes development programme for a military aircraft continues and has considerable revenue generating prospects if and when the development is completed successfully.

Kevin D'Silva

Chairman

24 February, 2010

Chief Executive's Report

Following the sharp economic decline in the automotive market during the second half of the company's previous financial year, the first half of this financial year has seen the market begin a slow recovery.  From our existing customers, Koenigsegg has continued in line with expectations and the defence contract with MBDA continues to progress satisfactorily.  Contracts with Mov'it and a global automotive brake system supplier have begun to improve, but are still significantly below the company's original expectations. The Company recognises that, in these tough trading conditions, winning new business is very important.  We can report that we now have 3 new customers across the automotive and defence sectors.

1.   US brake system supplier which is purchasing a significant volume of ceramic brakes for a development programme for the next generation of US military transport vehicle. Orders to date on this development project amount to approx £193,000.

2.   The company has established a route to the US aftermarket for ceramic brakes via a well known performance brake system supplier.

3.   New 2 year contract with Microturbo to the value of €245,000. The contract is linked to the  development of ceramic materials and components for a range of European missiles.

We continue to work to win new business in the aerospace and defence markets. The Company expects the development programme with a US brake system manufacturer that supplies US military aircraft to continue to progress, with the focus on the development and commercialization of a ceramic brake system for a specialised military aircraft application. Whilst it is always very difficult to predict the adoption of new technologies, particularly in the aerospace market, both the Company and the customer are pleased with the pace of development and the technical advances made during the last 12 months, with the programme progressing through a number of key technical milestones.

In addition to winning new business the Company was awarded a £2.1 million, three year Collaborative R&D project by the U.K. Technology Strategy Board (TSB). Partners include: Faiverley Transport, Alcon Components, Bentley Motor Cars, Federal-Mogul Friction Products and the University of Loughborough.   The programme will develop the company's ceramic brake technology, further targeting both the automotive and rail brake markets, with our project partners Faiverley and Bentley motors.  The grant is expected to contribute £470,000 to reduce overheads over a three year period.

Operations

Affordability is a key requirement for all of our chosen markets, particularly with the current economic pressures the world is facing. We continue to develop the technology both in terms of product performance and cost to manufacture. We believe that further development using the Company proprietary MIST process (Melt Infiltration process) will deliver further cost saving in addition to the saving already made from CVIST.  The MIST development is well underway and will continue over the next six to twelve months.

In the autumn of 2008 the management recognised the change in trading conditions in the automotive sector and took steps to reduce its operational cost base by £200,000 per annum.  These cost savings have been realised and will be continued to be realised going forward.

Kevin Johnson

Chief Executive

24 February 2010

SURFACE TRANSFORMS PLC

CONDENSED CONSOLIDATED HALF YEARLY INCOME STATEMENT

for THE six months ended 30 November 2009 

			Six Months		Six Months
			Ended		Ended		Year ended
			30-Nov		30-Nov		31-May
	Note		2009		2008		2009
			£		£		£
Revenue			254,776		398,409		679,284
Cost of sales			(112,128)		(202,243)		(282,487)
Gross profit			142,648		196,166		396,797
Administrative expenses:
Before research costs			(359,630)		(397,949)		(733,700)
Research costs			(328,700)		(452,453)		(839,509)
Total administrative expenses			(688,330)		(850,402)		(1,573,209)
Other operating income			61,270		87,791		166,035
Operating loss			(484,412)		(566,445)		(1,010,377)
Financial income			218		18,882		20,646
Financial expenses			(994)		-		(1,854)
Loss before tax			(485,188)		(547,563)		(991,585)
Taxation	2		211,071		150,845		150,845
Loss for the period			(274,117)		(396,718)		(840,740)
Other comprehensive income for the period			-		-		-
Total comprehensive income for the period			(274,117)		(396,718)		(840,740)
Loss per ordinary share
Basic and diluted	3		(1.26p)		(2.01p)		(4.42p)

SURFACE TRANSFORMS PLC

CONDENSED CONSOLIDATED HALF YEARLY BALANCE SHEET

AS AT 30 NOVEMBER 2009

	As at		As at		As at
	30-Nov		30-Nov		31-May
	2009		2008		2009
	£		£		£
Non current assets
Property Plant and Equipment	366,239		390,094		382,448
Total non current assets	366,239		390,094		382,448
Current assets
Inventories	218,129		297,354		228,251
Trade and Other Receivables	256,319		297,423		212,851
Cash and cash equivalents	645,601		724,903		404,275
Total current assets	1,120,049		1,319,680		845,377
Total assets	1,486,288		1,709,774		1,227,825
Current liabilities
Other interest bearing loans and borrowings	(14,438)		(14,438)		(14,438)
Trade and other payables	(240,435)		(257,408)		(168,669)
Total current liabilities	(254,873)		(271,846)		(183,107)
Non Current Liabilities
Other interest bearing loans and borrowings	(10,977)		(18,709)		(18,195)
Total Liabilities	(265,850)		(290,555)		(201,302)
Net assets	1,220,438		1,419,219		1,026,523
Equity
Share capital	235,473		190,308		190,308
Share premium account	6,121,493		5,749,952		5,749,952
Other reserves	463,885		463,885		463,885
Retained deficit	(5,600,413)		(4,984,926)		(5,377,622)
Total equity attributable to equity shareholders of the company	1,220,438		1,419,219		1,026,523

SURFACE TRANSFORMS PLC

CONDENSED CONSOLIDATED HALF YEARLY STATEMENT OF Cash flowS

for THE six months ended 30 November 2009

	Six Months Ended	Six Months Ended	Year ended
	30-Nov	30-Nov	31-May
	2009	2008	2009
	£	£	£
Cash flows from operating activities
Loss for the period	(274,117)	(396,718)	(840,740)
Adjusted for:
Depreciation charge	35,138	35,128	71,282
Profit on disposal of plant and equipment	-	-	(4,402)
Equity settled share-based payment expenses	51,326	43,098	94,424
Financial income	(218)	(18,882)	(20,646)
Financial expense	994	-	1,854
Taxation	(211,071)	(150,845)	(150,845)
	(397,948)	(488,218)	(849,073)
Changes in working capital
(Increase)/decrease in inventories	10,122	(38,480)	30,623
(Increase)/decrease in trade and other receivables	(43,468)	(4,500)	80,072
Increase/(decrease) in trade and other payables	71,767	15,903	(105,983)
	(359,527)	(515,295)	(844,361)
Finance income received	218	18,882	20,646
Finance expense paid	(994)	-	(1,854)
Taxation received	211,071	150,845	150,845
Net cash used in operating activities	(149,232)	(345,569)	(674,724)
Cash flows from investing activities
Acquisition of property, plant and equipment	(18,929)	(42,247)	(22,150)
Proceeds from sale of property, plant and equipment	-	-	5,075
Net cash used in investing activities	(18,929)	(42,247)	(17,075)
Cash flows from financing activities
Proceeds from issue of share capital	416,706	-	-
Payment of finance lease liabilities	(7,219)	-	(16,645)
Net cash from financing activities	409,487	-	(16,645)
Net increase/(decrease) in cash and cash equivalents	241,326	(387,816)	(708,444)
Cash and cash equivalents at the beginning of the period	404,275	1,112,719	1,112,719
Cash and cash equivalents at the end of the period	645,601	724,903	404,275

SURFACE TRANSFORMS PLC

CONDENSED CONSOLIDATED HALF YEAR STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS TO 30 NOVEMBER 2009

		Share Capital	Share premium account	Capital reserve	Profit and loss account	Total
For the six months to 30 November 2009
		£	£	£	£	£
Balance at 31 May 2009		190,308	5,749,952	463,885	(5,377,622)	1,026,523
Loss for the period		-	-	-	(274,117)	(274,117)
Total comprehensive income for the period		190,308	5,749,952	463,885	(5,651,739)	752,406
Transactions with owners, recorded directly to equity
Shares issued in the period		45,165	371,541	-	-	416,706
Equity settled share based payments		-	-	-	51,326	51,326
Total contributions by and distributions to the owners		45,165	371,541	-	51,326	468,032
Balance at 30 November 2009		235,473	6,121,493	463,885	(5,600,413)	1,220,438
		Share Capital	Share premium account	Capital reserve	Profit and loss account	Total
For the six months to 30 November 2008
		£	£	£	£	£
Balance at 31 May 2008		190,308	5,749,952	463,885	(4,631,306)	1,772,839
Loss for the period		-	-	-	(396,718)	(396,718)
Total comprehensive income for the period		190,308	5,749,952	463,885	(5,028,024)	1,376,121
Transactions with owners, recorded directly to equity
Shares issued in the period		-	-	-	-	-
Equity settled share based payments		-	-	-	43,098	43,098
Total contributions by and distributions to the owners		-	-	-	43,098	43,098
Balance at 30 November 2008		190,308	5,749,952	463,885	(4,984,926)	1,419,219
		Share Capital	Share premium account	Capital reserve	Profit and loss account	Total
For the year to 31 May 2009
		£	£	£	£	£
Balance at 31 May 2008		190,308	5,749,952	463,885	(4,631,306)	1,772,839
Loss for the period		-	-	-	(840,740)	(840,740)
Total comprehensive income for the period		190,308	5,749,952	463,885	(5,472,046)	932,099
Transactions with owners, recorded directly to equity
Shares issued in the period		-	-	-	-	-
Equity settled share based payments		-	-	-	94,424	94,424
Total contributions by and distributions to the owners		-	-	-	94,424	94,424
Balance at 31 May 2009		190,308	5,749,952	463,885	(5,377,622)	1,026,523

SURFACE TRANSFORMS PLC

NOTES

1.          Accounting policies

Basis of preparation

The interim financial statements are the responsibility of the Directors and were authorised and approved by the Board of Directors for issuance on 24 February 2010.

The interim financial statements of Surface Transforms PLC for the period ended 30 November 2009 were unaudited and do not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985.

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 (together referred to as 'the Group' or 'Surface Transforms'). 

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 2009.

The comparative figures for the financial year ended 31 May 2009 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.

Except as described below, 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 2009.

Changes in accounting policy

IAS 1 (revised 2007)" Presentation of Financial Statements" is mandatory for accounting periods beginning on or after 1 January 2009. The statement requires the presentation of a statement of comprehensive income, which has replaced the income statement. In addition a condensed consolidated statement of changes in equity has been included in the primary statements, showing changes in each component of equity for each period presented. Comparative information has been re-presented so that it is in conformity with the revised standard. The Group has adopted the revised standard; there is no impact upon the financial statements other than presentation.

Segmental reporting

IFRS 8 "Operating Segments" is mandatory for the first time for accounting periods beginning on or after 1 January 2009. The standard 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 the business does not have separate divisional segments as defined under IFRS 8. The Managing Director assesses the commercial performance of the business based upon consolidated revenues, margins, operating costs and assets are reviewed at a consolidated level.

Seasonality of operations

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

Notes (continued)

Financial year to 31 May 2008 proved to be an exception to this trend due to the impact on the company of the global financial downturn.

2          Taxation

Analysis of credit in the period/year

	Six months ended	Six months ended	Year  ended
	30-Nov	30-Nov	31-May
	2009	2008	2009
	£	£	£
UK Corporation tax
Current tax on income for the period	-	-	-
Research and development tax repayment	211,071	150,845	150,844
	211,071	150,845	150,844

The effective rate of tax for the period/year is lower than the standard rate of corporation tax in the UK of 28 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 November	30 November	31 May
	2009	2008	2009
	Pence	Pence	Pence
Loss per ordinary share:
Basic and diluted	(1.26)	(2.01)	(4.42)

Loss per ordinary share is based on the Company's loss for the financial period of £274,117 (30 November 2008: £396,718; 31 May 2009: £840,740). The weighted average number of shares used in the basic calculation is 21,745,632(30 November 2008: 19,030,748; 31 May 2009: 19,030,748). 

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".

Notes (continued)

4.         Segment reporting

 Due to the start up nature of the business the Group is currently focussed on building revenue streams from a variety of different 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 Group's chief operating decision maker, the Managing Director, reviews performance information for the group 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 2009	£
Segment revenues	254,776
Operating expenses	(739,188)
Results from operating activities	(484,412)
Net finance costs	(776)
Loss before tax	(485,188)
Assets
Segment assets	1,220,438
	Total
Period ended 30 November 2008	£
Segment revenues	398,409
Operating expenses	(964,854)
Results from operating activities	(566,445)
Net finance costs	18,882
Loss before tax	(547,563)
Assets
Segment assets	1,419,219

5.         Dividends

            The directors are not proposing the payment of a dividend in respect of the six months ended 30 November 2009.

Notes (continued)

6.         Subsidiary Companies

            The following subsidiary companies were incorporated by Surface Transforms Plc on 8^th May 2009.

            ST Aerospace Limited

            ST Automotive Ceramic Limited

            ST Defence Limited

            ST Racing Limited

            As of this date these accounts have been prepared on a consolidated group basis.

7.         Copies of results

Copies of the half-yearly financial results are available at the Company's registered office, Unit 4, Olympic Park, Poole Hall Road, Ellesmere Port, Cheshire CH66 1ST and on the Company's website www.surface-transforms.com.

 

END

 

 

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