Surface Transforms plc
("Surface Transforms" or the "Company)
Preliminary Results and
Notice of Annual General Meeting
Surface Transforms (AIM:SCE) is pleased to announce its preliminary results for the period ended 31 December 2019. The Company's Annual Report and Accounts for the period ended 31 December 2019, together with a notice convening the Company's Annual General Meeting at Image Business Park, Acornfield Road, Knowsley Industrial Estate, Liverpool, L33 7UF on Friday 24 July 2020 at 9.30am will be posted to shareholders in due course. Copies of the Annual Report and Accounts will be available on the Company's website www.surfacetransforms.com as from this posting date.
Highlights
Financial highlights
· Revenues increased £936k to £1,451k (Seven months to 31 December 2018: £515k)
· Gross margin reduced to 59.8% (Seven months to 31 December 2018: 63%)
· Research costs increased to £1,502k (Seven months to 31 December 2018: £1,110k) which has been partially offset by accrued R&D tax credit of £443k (Seven months to 31 December 2018: £nil)
· Other administrative expenses increased by £91k to £1,063k (Seven months to 31 December 2018: £972k)
· Loss after taxation of £1,317k (Seven months to 31 December 2018: £1,573k)
· Loss per share of 0.97p (Seven months to 31 December 2018: 1.29p)
· Cash used in operating activities decreased by £1,284k to £684k (Seven months to 31 December 2018: £1,968k)
· Cash at 31 December 2019 was £770k (31 December 2018: £319k)
· Capital expenditure in the period was £621k (Seven months to 31 December 2018: £143k)
· Tax credits of £523k received in the period against an accrual of £400k
· Post balance sheet date, the Company successfully raised £2.25m after fees in a significantly over-subscribed placing and open offer.
Customer and Operational highlights
· Secured an €11.8m contract over seven years from major German automotive OEM 5 with start of production ("SOP") in October 2021. Discussions continue regarding follow on business
· Further SOP delays of contracts with British automotive customer OEM 6
· Secured and delivered a £400k contract with British OEM 1. Discussions continue regarding follow on business
· Completed delivery of all machines for OEM Production Cell One and demonstrated individual furnace functional capability
· Post balance sheet date, won a contract valued in excess of £5m to supply brake discs on the new Koenigsegg Gemera
· Received full regulatory approval from the Environmental Agency for the Knowsley site
Chairman's Statement
This seven month report is for the transitional period from the old reporting date of 31 May 2019 to the new date of 31 December 2019. It was a period of considerable progress in the fortunes of the Company including significant break-through contract awards, the delivery and installation of the key elements of the new OEM Production Cell One and improvement in current trading performance.
The period since this reporting period end has been dominated by the huge distraction of the COVID-19 pandemic but as described below the Company has taken both operational and financial actions to mitigate the impact.
The Company is still on progress to reach positive Adjusted EBITDA in 2021 and profit before tax in 2022.
COVID-19
The Company has been able to maintain operations during the current crisis and, due to the quick response of the entire team, have managed to keep the factory operational throughout the lockdown phase of the crisis. No orders with OEM's or near OEM's customers have been lost, and indeed in this period the Company announced a contract in excess of £5m from Koenigsegg for their new Gemera car. However there have been delays to both some start of production (SOP) dates and the initial production ramp up rates. Additionally, there has been some slowing of retrofit sales but this is expected to be a temporary position that will recover as lockdowns across the world are slowly lifted.
The trading impact of the pandemic was fully described in the background provided to investors at the time of the April 2020 COVID-19 statements and fund raising and has not changed since that time.
Against this background the Company has, after the period end, raised £2.25m net after fees through a significantly over subscribed placing and open offer which has placed the Company in a secure position to mitigate the risks that the COVID-19 pandemic could create and ensures that it can maintain the development activities to support current and potential new OEM contracts.
The Company did apply for a government backed CBILS loan but understands that historic trading performance renders the Company ineligible. This was the management assumption at the time of the equity fund raise and has no impact on the internal projections and previously provided guidance.
Progress with potential OEM Customers
The Company continues to test products with customers as described in previous announcements and still expects to make further contract announcements during 2020:
OEM 5 : In the period the Company was notified of its selection as a tier one supplier of a carbon ceramic disc to the major German automotive company OEM 5. The selection is to be the sole supplier of the brake disc option on one axle of a new model. Lifetime revenue on this car is estimated to be €11.8m commencing late 2021. Annual revenue is estimated to be €2.0m per year before tapering off during 2026.
In addition, whilst this selection is the first with German OEM 5 the commercial understanding embraces the opportunity to be selected for further multiple platforms in the customer's portfolio over time - pricing has been agreed providing a link between increasing volumes and decreasing unit prices. These potential awards could generate revenues of many times the value of this first contract.
The customer is now completing the system integration tasks required to bring the car into production. This work is proceeding to plan.
OEM 6 : Thecustomer has announced changes to SOP on both contracts previously won. On the first contract we won with them in 2017 the customer had expected SOP in the summer of 2020 but recently announced a further COVID-19 related slippage to Q4 of 2020; we now expect the contract to start in that period, to run through 2021 and conclude in 2022. However this delay had been anticipated by the Company in its COVID-19 statement and is thus already reflected in the Company's previously announced assumptions and revenue guidance.
Similarly, the customer has announced SOP delays on the second car on which Surface Transforms is a nominated supplier. Again, the Company had previously included a general overall delay contingency to provide against any such risk and now expects SOP on this contract in early 2023 with no impact on overall guidance
OEM 1 : In the period the Company both received and delivered a £400k order for carbon ceramic discs on a track car to a major high performance British automotive company.
The Company is in discussions with the customer on further opportunities.
OEM 3 : Work continues on the product enhancements to meet the customer's unique environmental test. Progress has been good with particular focus on ensuring that a capable production process matches the development activities. The Company is now in discussions on whether this enhanced product is sufficiently advanced for approval by OEM 3 for nomination on particular future programmes, in parallel with continuing to develop further process improvement to widen the potential for nominations. Albeit the customer discussions have been delayed by the COVID-19 lockdown of the customer's engineers.
Koenigsegg : Post balance sheet date the Company announced that it has been selected as the tier one, sole supplier of carbon ceramic brake discs on the recently launched Koenigsegg Gemera car. The lifetime value of the contract is in excess of £5m with a start of production in mid 2022 completing in mid 2027. Revenue is expected to be generated broadly evenly over the contract with approximately £1m per year being recognised in each of the four mid-programme years commencing 2023.
Other OEMs . The Company continues constructive discussions with a number of other OEMs, some of whom are now testing our product for the first time.
Knowsley Facility
OEM Production Cell One : All the new furnaces have now demonstrated functional capability and, indeed, some are being used to contribute to Small Volume Cell production output, thereby taking advantage of superior technology and lower production costs. The key task over the next few months is to demonstrate full system integration of all the machines in the cell.
Environmental permits : The Company has now received full regulatory approval from the Environmental Agency for all technologies, including furnaces, on the Knowsley site.
2019 production surge : The success in delivering the £400k order for OEM 1 in a very limited period was a significant achievement by the, relatively new, operations team. Apart from the obvious customer relationship and financial benefits arising from this order, the "production surge" was a very valuable learning experience for us in respect to both the Company's internal processes and supply chain. Where weaknesses were exposed, remedial actions have either been addressed or are in advanced stages of consideration.
Cost reductions : The Company continues to see continuous reduction in manufacturing cost as a crucial key ingredient of future success in the automotive industry. When OEM Production Cell One goes live in 2020, the Company will have achieved its original plan to halve production costs. The Company will not rest on this milestone with further cost reduction initiatives under active consideration.
Summary
Surface Transforms continues its journey from a development company to a mainstream volume automotive supplier with a site capable of revenues of £50m per year in a market that could ultimately reach £2 billion per annum.
In 2020 we expect to build on this foundation by winning further contracts, completing the system integration of OEM Production Cell One and begin delivering both production and development parts on the new contracts.
Whilst COVID-19 will clearly impact 2020, the Company expects the impact thereafter to be minimal. The Board maintains previous guidance that it will reach positive Adjusted EBITDA in 2021 and profits before tax in 2022.
Finally, may I conclude by recording the Board's appreciation of the outstanding contribution by all members of staff. Thank You!
David Bundred
Chairman
19 June 2020
Strategic Report
Operational Review and principal activity
Surface Transforms is a UK based developer and manufacturer of carbon ceramic products for the brakes market for the automotive and aerospace markets. In these industries our products are lightweight, extremely durable and highly refined. For the automotive industry, they offer better heat dissipation and material strength resulting in superior wear life, improved brake pad wear life, reduced brake pad dust and weight reduction compared to both our main competitor's carbon ceramic products and other competitors iron discs.
Our strategy is to be a profitable, series production supplier of carbon ceramic brake discs to the large volume original equipment manufacturer (OEM) automotive market and to niche military and small commercial aircraft brake market. To achieve this, we work directly with OEMs and closely with Tier One suppliers to meet the customers' requirements on product, price, quality and security of supply.
In addition, we supply carbon ceramic brake discs to small volume vehicle manufacturing and retrofit high performance kits for performance cars.
The key features of our business model are as follows:
· Engineer and manufacture carbon ceramic brake products, which deliver high technical performance for the luxury and performance brakes markets, which we estimate to be, ultimately, a circa £2 billion per annum market
· Achieve selection and supply to OEM customers with product for multiple models in multiyear supply agreements
· Be a 'Quality Company' with a culture that lives and breathes its world-class business processes and management systems. We surpass the automotive and aerospace quality standards (IATF16949); and thus, have the confidence that we are able to pass all customer audits, as evidenced by recent contract wins
· Protect the environment by minimising the environmental impacts arising from our activities, products and services and be committed to continuous improvement of our environmental performance
· Operate lean manufacturing processes, enabling the Company to produce products that are competitively priced with good margins
· Support and manage our supply chain which can deliver to our customers' requirements on product, price, quality and security of supply
· Utilise our manufacturing capacity capable of providing sales of circa £17 million, with the capability for further expansion, with the requisite capital expenditure, to £50 million sales per annum.
Succeeding in these activities will generate highly desirable, world leading quality products, which are price competitive and profitable to the business.
Furthermore, our products and processes are protected by a high level of intellectual property through a combination of patents but mainly Company process knowhow.
Delivering our objectives:
Automotive OEMs
The automotive contracts wins achieved during the year have provided the Company with a clear flight path to cash generation in 2021 and profitability in 2022.
The Company's activities are focused on preparing to enter series supply for these contracts and on engineering the product for other models with existing and new OEM customers. These activities have continued during the COVID-19 lockdown period.
As we enter series supply with OEMs a key objective is to deliver good supplier performance as this then leads to product adoption on multiple model platforms which run simultaneously over many years and provide long terms revenue visibility and strong growth.
As part of being a good supplier we are focused on achieving certain key operational objectives:
· Quality - The Company continues to have excellent in-service quality. But improving quality is a never-ending process, particularly in the automotive industry. Our measure of improving quality is therefore primarily focussed on reducing the internal cost of quality; for example, reducing internal processing, which of course also reduces cost; good progress is being made but there is always more to do. Additionally, maintaining IATF 16949 quality approval is another measure of success in this area. This quality approval process requires annual re-certification audits and it is pleasing to report that in the year the Company successfully completed its annual recertification of both IATF16949 and ISO 9001. Additionally, the Company has been appraised successfully by a number of OEM customers.
· Environmental - The Company has the objective of being responsible for the environment and improving it. We are determined to be a good neighbour. We are an ISO14001 certified company and have an environmental permit to operate our processes. We protect the environment through control and monitoring of all emissions from our processes and have set objectives to reduce our environmental footprint. The Company also believes its product should address environmental challenges. Our carbon ceramic brakes have substantially longer life than existing iron brakes, reduced carbon emissions through weight reduction and considerably less pollution by reducing the amount of brake pad dust produced during braking.
· Supply chain security - as with any manufacturing process we are only as good as our supply chain. Improvements have been made to our supply chain in terms of both improving our existing suppliers and adding new suppliers to our approved supplier list. Further improvements have been identified and are being addressed during 2020. We are pleased with progress made and will continue to reduce our supply chain risks.
· Manufacturing capability, capacity and cost - the Company operates a versatile SVP (Small Volume Production) Cell to support OEM development, Near OEMs and retrofit products. The cell is capable of delivering approximately £4.5m revenue per annum. There are additional opportunities to improve this further and the capacity requirements are continuously assessed. The new OEM Production Cell One is advancing well with some furnaces supporting production in the SVP cell. The OEM Production Cell One capacity has a phased introduction with the first £6m of potential revenue available in Q3 2020, with the remaining £6m of revenue capacity planned for later once operational lessons learnt have been defined. With the introduction of OEM Production Cell One, the cost reduction objectives set a number of years ago will be complete. The cost reduction plans implemented across both the SVP Cell and OEM Production Cell One have a material effect on both the potential market and Company margins and as such plans for further cost reduction are being developed.
Near OEMs and Retrofit
These customers make up a relatively small addressable market of up to £2m per annum. Supplying these customers is delivering on the objectives of product validation for large OEM customers as well as establishing the Company's brand and reputation as a high-quality manufacturer with a world-leading product. The secondary objective (as the market is small) to generate growing revenues is also being achieved. The risks associated with forecasting Near OEM sales, relating to SOP (Start of Production) and production delays remain, but are being mitigated using a portfolio approach with the Company now having successfully enlarged its customer base of Near OEM models.
We continue to sell retrofit kits for Porsche, Nissan GTR, Aston Martin, Ferrari and McLaren and working with our distributors and directly with service garages we have seen some growth during the year.
Summary
We continue to make significant investment in engineering work which support current contracts. Our work on quality, environment, supply chain, capacity and cost reduction continue to achieve our goals with further success expected in the future.
Financial Review
Revenue in the seven months to 31 December 2019 increased to £1,451k (seven months to 31 December 2018*: £515k, 12 months to 31 May 2019: £1,002k) in part due to the £400k order from OEM 1, whilst the Company is also pleased to report increases in near OEM sales, which we believe to be sustainable. Sales for the six months to 30 November 2019 were £1,029k the high sales in December 2019 reflecting the production catch up on near OEM and aftermarket sales as the prior months of September to November had been devoted to filling the OEM 1 order.
Gross profit in the seven months to 31 December 2019 increased to £868k whilst for six months period to 30 November 2019, increased to £630k (seven months to 31 December 2018*: £328k, 12 months to 31 May 2019: £617k). Gross profit margin was 60% (seven months to 31 December 2018*: 63%, 12 months to 31 May 2019: 62%) due in large part to product mix but is expected to improve in 2020 as OEM Production Cell One cost reductions come on stream.
The Company has adopted IFRS 16 in the period, capitalising operating leases. The major lease for the Company is the rent on the Knowsley site; all other leases are minimal. The major impact of IFRS 16 on the Company's financial statements, is on the Statement of Financial Position creating right of use assets totalling £1.5m at transition date, together with corresponding liabilities. The impact on the Statement of Total Comprehensive Income is to exchange a reduction in the rent (hitherto treated as an expense) for an increase in interest and depreciation. In the seven months to 31 December 2019 this added a net £30k to the loss for the year before and after tax. These IFRS 16 adjustments have no impact on cash. To facilitate comparison, the 2018 comparatives have been restated to reflect the impact of IFRS 16 had it been applied in that period as well.
Administrative expenses rose by £91k to £1,063k against the seven month period (seven months to 31 December 2018*: £972k, 12 months to 31 May 2019: £1,514k) largely driven by above budget plant repair costs of £66k, certification and consultancy costs of £45k to achieve environmental agency approval together with the introduction of IFRS 16. The certification costs will not recur.
Research expenses increased to £1,502k (seven months to 31 December 2018*: £1,110k, 12 months to 31 May 2019: £2,039k) of which the major elements were significant increases in the number of prototypes being tested along with development of the furnace process in support of cost reduction.
Cash at 31 December 2019 was £770k (31 December 2018*: £319k, 31 May 2019: £1,925k), to which can be added £425k customer payments received in the first week of January (31 May 2019: £1,925k). Both periods were impacted by a combination of extended customer credit terms and subsequent late payment. The significant cash inflow in December and January reflected payment of these overdue sums and December receipt of the R&D tax credit. Inventory reduction was less than planned in 2019 but is expected to reduce further during 2020.
Loss per share was 0.97p (seven months to 31 December 2018*: 1.29p, 12 months to 31 May 2019: 1.68p).
Change of year end date:
These accounts are the first prepared to the new accounting reference date. The Company took this step to align its reporting period with that of its major OEM customer base, with the intention that in the longer term this would reduce variability within reporting periods. The accounts presented are therefore not comparable to the period ended 31 May 2019 and so the Company has decided to aid this by supplying comparatives for the seven month period ended 31 December 2018. These comparators are unaudited although the management estimates used in preparing them are consistent. The next set of accounts will be for the year ending 31 December 2020.
Key performance indicators
The Directors continue to monitor the business internally with several performance indicators: order intake, sales output, profitability, supply chain capacity, health and safety, quality and manufacturing cost of automotive discs. A set of business milestones has been agreed and are discussed as part of the monthly board meeting.
The Company produces an annual business plan and full monthly forecasts detailing sales, profitability and cash flow to help monitor business performance going forward.
Management meetings are held on a weekly basis, all senior managers attend and discuss production, engineering, financial and quality issues.
Risks and uncertainties
The principal short-term risk faced by the business is the current COVID-19 situation and the Company has taken rapid action to minimise these risks. In addition to the change in operational activities and post balance sheet fund raise, the Company has taken actions to conserve cash in the short term to maximise the resilience of the Company through a cost reduction programme and utilising the government furlough scheme.
There is a risk of delay on customer production due to COVID-19, however as at the date of publication all of our customers have returned to production and there is a focus on revenue generation in the short term. This leads the directors to believe that this risk is currently low unless a further shutdown should occur.
As in previous years the other major risk faced by the Company is considered to be the speed at which our customers and potential customers adopt the new carbon ceramic product technology. The contract awards in the period indicate the strengthening desire from a number of volume automotive OEMs to incorporate the Company's product in their respective platforms. This risk is constantly assessed by regular customer review meetings but is now clearly much reduced.
The risks associated with bringing the newly purchased furnaces into production are being managed by both a project team that has the experience and skills to deliver this type of project as well as pre-delivery testing at the supplier's premises. Regular weekly and monthly reviews are held and the project's progress is communicated across the entire company on a regular basis.
The Company has an exposure to exchange risk however this is partially mitigated through natural hedging activities.
In terms of uncertainties, product sales are still expected to grow with future OEM projections now supported by contracts. The Board expects continuing growth with Near OEM customers but sales growth is expected to be modest in the retrofit market This uncertainty is constantly assessed by regular customer meetings and monitoring the level of enquiries and orders for both the Company's products and industry wide.
In addition, the Company faces the continued uncertainty created by the global economic and political climate, particularly Brexit. The Company has assessed the risks surrounding this issue and, whilst the outcome is still unknown, the Company believes that the timing of the end of the transitional period, when considered alongside supply timescales required by our German OEM 5 customer, mean that any initial disruption should be avoided. The Company has identified methods of coping with a changed customs environment and will continue to monitor the situation and will react as necessary.
In summary, the Company has made satisfactory progress in its automotive projects and is progressing well with its expansion plans. Please refer to note 21 for information on financial risk management and exposure.
Events after the reporting period
Following the balance sheet date, the Company has raised £2.25m after fees in a heavily over-subscribed placing and open offer. This action was taken to mitigate the expected reduction in turnover due to the current COVID-19 situation. The cash raised has secured the Company's future and delivered a healthy balance sheet going forward. In addition to this fund raise the directors have taken actions to reduce cash outflows in the short to medium term in order to give headroom for the Company in the future.
Directors and Staff
Post year end, the Company appointed Leigh Welch to the post of Sales Director. Leigh joins the Company with a wealth of experience in tier one automotive supply and sales most notably with Bosch and Delphi.
We would like to thank all our colleagues, management and staff alike, for their hard work and dedication over the past year.
Outlook
The 2020 financial year will clearly be impacted by COVID-19. Whilst OEM 6 has announced a number of changes to SOP on important cars for the Company, these changes had been broadly anticipated in internal forecasts.
Thereafter the Board continues to expect to achieve positive Adjusted EBITDA in 2021 and profit before tax in 2022.
The Board continues to expect gross margin and overheads in 2020 to be in line with previous guidance, including the COVID-19 statements. However, the adoption of IFRS 16 will increase previously stated forecast losses by approximately £48k in 2020, £44k in 2021, and £39k in 2022. These IFRS 16 adjustments have no impact on cash.
On behalf of the board
David Bundred Kevin Johnson
Chairman Chief Executive
19 June 2020
Statement of Total Comprehensive Income
For the period ended 31 December 2019
| 7m to 31st Dec 2019 | 7m to 31st Dec 2018 | Restated: 12m to 31st May 2019 |
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| (unaudited) |
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| £'000 | £'000 | £'000 |
Revenue | 1,451 | 515 | 1002 |
Cost of Sales | (583) | (188) | (385) |
Gross Profit | 868 | 328 | 617 |
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Administrative Expenses: |
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|
|
Excluding research and development costs | (1,063) | (972) | (1,514) |
Research and development costs | (1,502) | (1,110) | (2,039) |
Total administrative expenses | (2,566) | (2,081) | (3,553) |
Other operating income |
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Operating loss | (1,698) | (1,754) | (2,936) |
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Financial Income | 1 | 1 | 2 |
Financial Expenses | (63) | (53) | (96) |
Loss before tax | (1,760) | (1,806) | (3,030) |
Taxation | 443 | 233 | 921 |
Loss for the period after tax | (1,317) | (1,573) | (2,109) |
Total comprehensive loss for the period attributable to members | (1,317) | (1,573) | (2,109) |
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Loss per ordinary share |
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Basic and diluted | (0.97)p | (1.29)p | (1.64)p |
Statement of Financial Position
03769702
at 31 December 2019
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| Restated |
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| Dec-19 | Dec-18 | May-19 | May-18 |
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| £'000 | £'000 | £'000 | £'000 |
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| (unaudited) |
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Non-current Assets |
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Property, plant and equipment | 5,518 | 5,324 | 5,160 | 5,437 |
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Intangibles | 175 | 204 | 202 | 192 |
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| 5,693 | 5,528 | 5,362 | 5,629 |
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Current assets |
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Inventories | 1,006 | 1,109 | 1,162 | 855 |
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Trade and other receivables | 1,318 | 902 | 895 | 776 |
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Cash and cash equivalents | 770 | 319 | 1,925 | 923 |
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| 3,094 | 2,330 | 3,982 | 2,554 |
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Total assets | 8,787 | 7,858 | 9,344 | 8,183 |
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Current liabilities |
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Other interest bearing loans and borrowings | (118) | (38) | (88) | (29) |
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Loans associated with right of use assets | (138) | (137) | (137) | (137) |
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Trade and other payables | (1,028) | (388) | (584) | (790) |
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| (1,284) | (563) | (809) | (956) |
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Non-current liabilities |
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Government Grants | (200) | (200) | (200) | (200) |
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Loans associated with right of use assets | `(1,207) | (1,266) | (1,244) | (1,295) | ||||||||||
Other interest bearing loans and borrowings | (476) | (321) | (270) | (275) |
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Total liabilities | (3,167) | (2,350) | (2,523) | (2,726) |
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Net assets | 5,620 | 5,508 | 6,821 | 5,457 |
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Equity |
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Share capital | 1,361 | 1,237 | 1,360 | 1,140 |
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Share premium | 20,712 | 19,034 | 20,704 | 17,596 |
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Capital reserve | 464 | 464 | 464 | 464 |
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Retained loss | (16,917) | (15,227) | (15,706) | (13,743) |
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Total equity attributable to equity shareholders of the company | 5,620 | 5,508 | 6,822 | 5,457 |
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Statement of Changes in Equity
For the period to 31 December2019
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| 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 |
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|
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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 |
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Share options exercised | 1 | 8 | - | - | 9 |
Equity settled share based payment transactions | - | - | 106 | 106 | |
Total contributions by and distributions to the owners | 1 | 8 | - | 106 | 115 |
Balance at 31 Dec 2019 | 1,361 | 20,712 | 464 | (16,917) | 5,620 |
For the year to 31 May 2019
For the year to 31 May 2019 |
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| Before IFRS16 | IFRS16 Impact | Restated |
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| Share capital | Share premium account | Capital reserve |
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| Retained loss | Total |
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| £'000 | £'000 | £'000 |
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| £'000 | £'000 |
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Balance as at 31 May 2018 | 1,140 | 17,596 | 464 | (13,652) | (91) | (13,743) | 5,458 |
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Comprehensive income for the year |
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Loss for the period | - | - | - | (2,059) | (50) | (2,109) | (2,109) |
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Total comprehensive income for the year | 1,140 | 17,596 | 464 | (15,711) | (141) | (15,852) | 3,349 |
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Transactions with owners, recorded directly to equity |
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Shares issued in the period | 213 | 3,228 |
| - | - | - | 3,441 |
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Share options exercised | 7 | 63 |
| - | - | - | 70 |
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Cost of issue off to share premium | - | (183) |
| - | - | - | (183) |
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Equity settled share based payment transactions - | - | - | 146 | - | 146 | 146 |
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Total contributions by and distributions to the owners | 220 | 3,108 | - | 146 | - | 146 | 3,474 |
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Balance at 31 May 2019 | 1,360 | 20,704 | 464 | (15,565) | (141) | (15,706) | 6,823 |
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For the 7months to 31 Dec 2018 (unaudited) |
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| Share capital | Share premium account | Capital reserve | Retained loss | Total | |||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | |||||||
Balance as at 31 May 2018 (audited) | 1,140 | 17,596 | 464 | (13,743) | 5,457 | |||||||
Comprehensive income for the year |
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Loss for the year | - | - | - | (1,573) | (1,573) | |||||||
Total comprehensive income for the year | 1,140 | 17,596 | 464 | (15,316) | 3,884 | |||||||
Transactions with owners, recorded directly to equity |
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Shares issued in the year | 90 | 1,445 | - | - | 1,535 | |||||||
Share options exercised | 7 | 62 | - | - | 69 | |||||||
Cost of issue off to share premium | - | (69) | - | - | (69) | |||||||
Equity settled share based payment transactions - | - | - | 90 | 90 | ||||||||
Total contributions by and distributions to the owners | 97 | 1,438 | - | 90 | 1,625 | |||||||
Balance at 31 Dec 2018 | 1,237 | 19,034 | 464 | (15,226) | 5,508 | |||||||
Statement of Cash Flows
for the period ended 31 December 2019
|
|
|
|
| 7m to 31st December | 7m to 31st December | 12m to 31st May |
| 2019 | 2018 | 2019 |
|
| (unaudited) | (Restated) |
| £'000 | £'000 | £'000 |
Cash flow from operating activities |
|
|
|
Loss after tax for the year | (1,317) | (1,573) | (2,109) |
|
|
|
|
Adjusted for: |
|
|
|
Depreciation and amortisation charge | 289 | 244 | 442 |
Equity settled share-based payment expenses | 106 | 91 | 146 |
Financial expense | 63 | 53 | 96 |
Financial income | (1) | (1) | (2) |
Taxation | (442) | (233) | (921) |
| (1,302) | (1,419) | (2,348) |
Changes in working capital |
|
|
|
Decrease/(increase) in inventories | 157 | (254) | (307) |
Decrease/(increase) in trade and other receivables | (501) | (126) | 281 |
Increase/(decrease) in trade and other payables | 443 | (402) | (206) |
| (1,203) | (2,201) | (2,580) |
Taxation received | 523 | 233 | 521 |
Net cash used in operating activities | (680) | (1,968) | (2,059) |
|
|
|
|
Cash flows from investing activities |
|
|
|
Acquisition of tangible and intangible assets | (344) | (77) | (175) |
Net cash used in investing activities | (344) | (77) | (175) |
|
|
|
|
Cash flows from financing activities |
|
|
|
Proceeds from issue of share capital, net of expenses | 9 | 1,535 | 3,328 |
Payment of lease liabilities | (53) | (42) | 3 |
Payment of long term loans | (25) | - | - |
Interest received | 1 | 1 | 2 |
Interest paid | (63) | (53) | (96) |
Net cash generated from financing activities | (131) | 1,441 | 3,237 |
Net (decrease)/increase in cash and cash Is equivalents | (1,155) | (604) | 1,002 |
Cash and cash equivalents at the beginning of the period | 1,925 | 923 | 923 |
Cash and cash equivalents at the end of the period | 770 | 319 | 1,925 |
NOTES TO THE ACCOUNTS
1. Basis of preparation and general information
The financial information set out herein does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.
The financial information for the year ended 31 May 2019 has been extracted from the
Company's audited financial statements which were approved by the Board of Directors
on 19 June 2020 and which, if adopted by the members at the Annual General
Meeting, will be delivered to the Registrar of Companies for England and Wales.
The financial information for the year ended 31 May 2019 has been extracted from the
Company's audited financial statements which were approved by the Board of Directors
on 8 September 2019 and which have been delivered to the Registrar of Companies for
England and Wales.
The reports of the auditor on both these financial statements were unqualified, did not
include any references to any matters to which the auditors drew attention by way of
emphasis without qualifying their report and did not contain a statement under Section
498(2) or Section 498(3) of the Companies Act 2006.
The information included in this preliminary announcement has been prepared on a
going concern basis under the historical cost convention, and in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the EU and the
International Financial Reporting Committee (IFRIC) interpretations issued by the
International Accounting Standards Board (IASB) that are effective or issued and early
adopted as at the date of these financial statements and in accordance with the provisions of the Companies Act 2006.
The Company is a public limited company incorporated and domiciled in England &
Wales and whose shares are quoted on AIM, a market operated by the London Stock
Exchange. The principal activity of the Company is the development and manufacture of
carbon ceramic products for the automotive and aerospace brakes markets. The
registered office is Image Business Park, Acornfield Road, Knowsley Industrial Estate,
Liverpool, L33 7UF.
2. Going Concern
The financial statements have been prepared on a going concern basis which the
Directors believe to be appropriate. The Company incurred a net loss of £1,317k during
the period however the Directors are satisfied, based on detailed cash flow projections and after the consideration of reasonable sensitivities, that sufficient cash is available to meet the Company's needs as they fall due for the foreseeable future and at least 12 months from the date of signing the accounts. The detailed cash flow assumptions are based on the Company's annual budget, prepared and approved by the Board, which reflects a number of key assumptions including; revenue growth, underpinned by current pipeline; customer compliance with payment terms; other receipts of a value and timing consistent with previous years.
Further information regarding the Company's business activities, together with the
factors likely to affect future development, performance and position are set out in the
Chairman's statement and the Strategic report.
The current COVID-19 situation is expected to significantly reduce revenues from those previously forecast for 2020. As a result a fund raise has been carried out after the balance sheet date to deliver resilience to the company. In addition the company has taken cash protection measures in order to preserve working capital until the full impact can be assessed. The fundraise has however delivered the headroom required to give comfort over going concern.
The Directors believe that the Company is well placed to manage its business risks
successfully despite the current uncertain economic outlook. After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.
3. Segmental reporting
The Board has reviewed the requirements of IFRS 8 "Operating Segments", including
consideration of what results and information the Chief Executive (the Chief Operating
Decision Maker) reviews regularly to assess performance and allocate resources, and
concluded that 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
Chief Executive assesses the commercial performance of the business based upon a single set of revenues, margins, operating costs and assets.
Revenue by geographical destination is analysed as follows:
| Dec | Dec | 12m to 31st May | |
| 2019 | 2018 | 2019 | |
|
| (unaudited) |
| |
| £'000 | £'000 | £'000 | |
United Kingdom | 963 | 118 | 220 | |
Rest of Europe | 165 | 168 | 492 | |
United States of America | 251 | 217 | 269 | |
Rest of World | 72 | 12 | 21 | |
| 1,451 | 515 | 1,002 | |
| 7m to 31st December | 12m to 31st May | |
| 2019 | 2018 | 2019 |
| £'000 | £'000 | £'000 |
Analysis of credit in year |
|
|
|
UK corporation tax |
|
|
|
Adjustment in respect of prior years - R&D tax allowances 123 | 521 | ||
R&D tax allowance for current year | 320 | 233 | 400 |
Total income tax credit | 443 | 233 | 921 |
5. Loss per ordinary share
The calculation of basic loss per ordinary share is based on the loss for the financial year divided by the weighted average number of shares in issue during the year.
Losses and number of shares used in the calculations of loss per ordinary share are set out below: | |||
| 7m to 31st December | 12m to 31st May | |
Basic | 2019 | 2018 | 2019 |
Loss after tax (£) | (1,317,000) | (1,573,000) | (2,059,000) |
Weighted average number of shares (No. of shares) | 136,036,376 | 122,027,122 | 125,184,218 |
Loss per share (pence) | (0.97p) | (1.29p) | (1.64p) |
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 options would have the effect of reducing the loss per ordinary share from continuing operations and is therefore anti-dilutive under the terms of IAS 33.
6. Net debt
| As at 1 June 2019 | Cash Flow | Other non-cash movements | 31 December 2019 |
| £'000 | £'000 | £'000 | £'000 |
Cash and cash equivalents | 1,925 | (1,155) | - | 770 |
Leases | (58) | 13 | (276) | (319) |
Long term loans | (300) | 25 | - | (275) |
| 1,567 | (1,117) | (276) | 174 |
For enquiries, please contact
Surface Transforms plc +44 151 356 2141
Kevin Johnson, CEO
Michael Cunningham, CFO
David Bundred, Chairman
Cantor Fitzgerald Europe (Nomad & Joint Broker) +44 20 7894 7000
David Foreman
finnCap Ltd (Joint Broker) +44 20 7220 0500
Ed Frisby/Giles Rolls (Corporate Finance)
Richard Chambers (ECM)
For further Company details, visit www.surfacetransforms.com