Final Results
Embargoed Release: 07:00hrs Tuesday 16th September 2008
Surface Transforms plc
("Surface Transforms" or "the Company")
Preliminary Results
for the year ended 31 May 2008
Surface Transforms (AIM ticker: SCE) is the UK's leading manufacturer of
`next-generation' carbon fibre reinforced ceramic composite materials (CRFCs).
The Company's high-performance products are being commercialised with major
industry partners, for an expanding range of innovative global applications,
using cutting-edge technology developed by the Company.
Highlights
* Revenue increased by 90 per cent. to £508,111 (2007: £266,789)
* Losses after taxation improved by eight per cent. to £594,065 (2007: £646,422)
* Cash position as at 31 May 2008 of £1,112,719 (2007: £878,971)
* Order Book of £302,124 (as at 31 May 2008)
* Receipt of a four year, £300,000 to £400,000 per annum initial contract
with a leading, global, brake systems group for the supply of carbon fibre
brake discs.
* Award of a £150,000, three year development contract with MBDA, a world
leading missile manufacturer jointly owned by BAE Systems, EADS and
Finmeccanica.
* Unit costs of ceramic brake discs are now 20 per cent. lower than levels in
May 2007.
* The commencement of a development contract with a new US based aircraft
brake system supplier which currently supplies both commercial and defence
aircraft.
* Fundraising amounting to £897,000 net of expenses by the issue of new
ordinary shares at 20 pence per share as announced in July 2007.
Commenting, Kevin D'Silva, Chairman of Surface Transforms, said:
"We envisage further progress during the coming year and the board believes
that Surface Transforms has established itself as an industry operator with
world class technology. The commercial and development contracts which have
been signed in the past year underline this reputation.
"In spite of the widely reported slowdown in world consumer and industrial
markets, the Company continues to improve its order book. The board anticipates
that the revenue growth experienced in 2008/09 will continue."
Enquiries:
Surface Transforms plc websites: www.surface-transforms.com and
www.systemsST.com
Dr Kevin Johnson, Dr Geoff Gould Tel: 0151 356 2141
Kevin D'Silva Tel: 07802 306956
John East & Partners Limited (Nomad and Broker)
Simon Clements Tel: 020 7628 2200
Hansard Group (PR) Tel: 020 7245 1100
John Bick/Chris Roberts
Redmayne Bentley (Private Client Broker)
Lucy Clapham/Simon Flather Tel: 01943 886600
Chairman's statement
In the 12 months to 31 May, 2008 the Company has achieved its financial targets
for the year and has also met a number of the strategic and operating
milestones that the management had set themselves.
The Company started the 2008/09 financial year with a record order book; four
automotive brake systems clients that are ordering brake discs on a regular
basis and improved prospects for further growth in the business. The key
achievements for the period under review were:
* Receipt of a four year, £300,000 to £400,000 per annum initial contract
with a leading, global, brake systems group for the supply of carbon fibre
brake discs.
* Award of a £150,000, three year development contract with MBDA, a world
leading missile manufacturer jointly owned by BAE Systems, EADS and
Finmeccanica.
* Unit costs of ceramic brake discs are now 20 per cent. lower than levels in
May 2007.
* The commencement of a development contract with a new US based aircraft
brake system supplier which currently supplies both commercial and defence
aircraft.
* Fundraising amounting to £897,000 net of expenses by the issue of new
ordinary shares at 20 pence per share as announced in July 2007.
FINANCIAL REVIEW
In the 12 months to 31 May 2008, revenue was £508,111 (2007: £266,789). This
represents a 90 per cent. increase on the same period in 2007. Increased
automotive brake disc revenues account for most of the percentage rise and now
represents over 80 per cent. of the Company's revenue.
At 31 May 2008, the outstanding order book was £302,124 (2007: £126,097)
Losses after taxation for the 12 month period were £594,065 (2007: £646,422).
Loss per share was 3.33 pence (2007: 4.61pence loss per share).
During the year the Company raised £897,000 by way of an issue of ordinary
shares at 20 pence per share. Shareholder funds at 31 May 2008 were £1,722,839
(2007: £1,413,058) and this included cash deposits of £1,112,719 (2007: £
878,971).
Capital expenditure during the year amounted to £142,599 (2007: £193,382).
The Company has no borrowings.
DEVELOPMENTS
At present, the Company is currently in advanced discussions regarding a supply
contract with a leading European supplier of braking systems to the
after-market industry. A further announcement regarding this will be made in
due course.
In addition, in April 2008, the Company signed a four year supply agreement to
supply carbon fibre brake discs to a global automotive brake system supplier.
The directors believe, based on forecasts prepared by the brakes system
supplier, that this contract could generate additional revenues of
approximately £300,000 to £400,000 per annum over the life of the agreement and
that the Company has sufficient manufacturing capacity to meet this demand.
This agreement demonstrates that Surface Transforms has the expertise in
advanced carbon fibres and industrial fabrics which can provide a competitive
edge in composite brake technology and takes the Company's leading-edge
products into the forefront of the international automotive performance brake
market.
PEOPLE
The board would like to thank management and staff who have all contributed to
the progress the Company has made during the year. We continue to incentivise
executives with share options as we wish to align their rewards with those of
shareholders.
OUTLOOK
We envisage further progress during the coming year.
The board believes that Surface Transforms has established itself as an
industry operator with world class technology. The commercial and development
contracts which have been signed in the past year underline this reputation.
In spite of the widely reported slowdown in world consumer and industrial
markets, the Company continues to improve its order book. The board anticipates
that the revenue growth experienced in 2008/09 will continue.
Kevin D'Silva
Chairman
16 September 2008
Income Statement
for the year ended 31 May 2008
Note 2008 2007
£ £
Revenue 3 508,111 266,789
Cost of sales (252,874) (138,955)
Gross profit 255,237 127,834
Administrative expenses:
Before research costs (678,078) (586,643)
Research costs (615,617) (560,005)
Total administrative expenses (1,293,695) (1,146,648)
Other operating income 220,652 176,530
Operating loss (817,806) (842,284)
Financial income 67,347 59,845
Loss before tax (750,459) (782,439)
Taxation 4 156,394 136,017
Loss for the year (594,065) (646,422)
Loss per ordinary share
Basic and diluted 6 (3.33p) (4.61p)
All amounts relate to continuing activities.
Statement of Changes in Equity
as at 31 May 2008
2007 Share Share Capital Profit and Total
Capital premium reserve loss
account account
£ £ £ £ £
Credit in relation to - - - 62,375 62,375
share based payments
Net income recognised - - - 62,375 62,375
directly to equity
Loss for the year - - - (646,422) (646,422)
Total recognised income - - - (584,047) (584,047)
and expense
Opening shareholders funds 140,308 4,902,715 463,885 (3,509,803) 1,997,105
at 1 June 2006
Closing shareholders funds 140,308 4,902,715 463,885 (4,093,850) 1,413,058
at 31 May 2007
2008 Share Share Capital Profit and Total
Capital premium reserve loss
account account
£ £ £ £ £
Credit in relation to - - - 56,609 56,609
share based payments
Net income recognised - - - 56,609 56,609
directly to equity
Loss for the year - - - (594,065) (594,065)
Issue of new shares 50,000 847,237 - - 897,237
Total recognised income 50,000 847,237 - (537,456) 359,781
and expense
Opening shareholders funds 140,308 4,902,715 463,885 (4,093,850) 1,413,058
at 1 June 2007
Closing shareholders funds 190,308 5,749,952 463,885 (4,631,306) 1,772,839
at 31 May 2008
Balance sheet
at 31 May 2008
Note 2008 2007
£ £ £ £
Non-current assets
Intangible assets 5 - 1,886
Property, plant and equipment 382,975 289,455
382,975 291,341
Current assets
Inventories 258,874 212,181
Trade and other receivables 292,923 289,576
Cash and cash equivalents 1,112,719 878,971
Total Assets 1,664,516 1,380,728
2,047,491 1,672,069
Current Liabilities
Trade and other payables (274,652) (259,011)
Total Liabilities (274,652) (259,011)
Net assets 1,772,839 1,413,058
Equity
Share capital 190,308 140,308
Share premium 5,749,952 4,902,715
Capital reserve 463,885 463,885
Retained earnings (4,631,306) (4,093,850)
Total equity attributable to 1,772,839 1,413,058
equity shareholders of the
Company
Cash flow statement
for the year ended 31 May 2008
2008 2007
£ £
Cash flows from operating activities
Loss for the year (594,065) (646,422)
Adjusted for:
Depreciation charge 49,079 74,083
Amortisation charge 1,886 2,218
Equity settled share-based payment 56,609 62,375
expenses
Financial income (67,347) (59,845)
Taxation (156,394) (136,017)
(710,232) (703,608)
Changes in working capital
Increase in inventories (46,693) (87,846)
Increase in trade and other receivables (3,347) (205,441)
Increase in trade and other payables 15,641 129,997
(744,631) (866,898)
Finance income received 67,347 59,845
Taxation received 156,394 136,017
Net cash used in operating activities (520,890) (671,036)
Cash flows from investing activities
Acquisition of property, plant and (142,599) (193,382)
equipment
Net cash used in investing activities (142,599) (193,382)
Cash flows from financing activities
Proceeds from issue of share capital 897,237 -
Net cash from financing activities 897,237 -
Net increase/(decrease) in cash and cash 233,748 (864,418)
equivalents
Cash and cash equivalents at the beginning 878,971 1,743,389
of the period
Cash and cash equivalents at the end of 1,112,719 878,971
the period
Notes
1. Nature of Financial Information
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 May 2008 or 2007. The financial
information for 2007 is derived from the statutory accounts for 2007 which have
been delivered to the registrar of companies. The auditors have reported on the
2007 accounts: their report was unqualified and did not contain statements
under section 237(2) or (3) of the Companies Act 1985. The statutory accounts
for 2008 will be finalised on the basis of the financial information presented
by the directors in this preliminary announcement and will be delivered to the
registrar of companies following the Company's annual general meeting.
2. Basis of preparation
The financial statements have been prepared in accordance with applicable
accounting standards and under the historical cost accounting rules, modified
to include revaluation to fair value of certain financial instruments described
below.
The accounting policies set out in the 2008 report and accounts have, unless
otherwise stated, been applied consistently to all periods presented in the
financial statements and in preparing an opening IFRS balance sheet at 1 June
2006 for the purposes of the transition to Adopted IFRSs.
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 £
594,065 during the year however the directors are satisfied, based on detailed
cash flow projections, that sufficient cash is available to meet the Company's
needs as they fall due for at least 12 months from the date of signing the
accounts. In addition revenues are expected to continue to increase in the
coming years resulting in the Company becoming profitable in due course.
3. Analysis of turnover and loss on ordinary activities before taxation
Revenue and loss on ordinary activities before taxation is wholly attributable
to the principal activity of the Company
Primary reporting format - business segments
Revenue by business segment is analysed as follows:
2008 2007
£ £
Automotive 424,413 216,065
Aerospace 83,698 50,724
508,111 266,789
All business segments are serviced by a single production facility. As such,
net assets, liabilities, additions to property, plant and equipment, loss
before tax and depreciation cannot be attributed to specific business segments.
Secondary reporting format - Geographical segments
Revenue by destination is analysed as follows:
2008 2007
£ £
By geographical market:
United Kingdom 138,074 93,270
Rest of Europe 353,964 129,522
United States of America 16,073 42,897
Rest of World - 1,100
508,111 266,789
Revenue by origin, net assets and profit before interest and tax all relate to
the UK.
4. Taxation
Analysis of credit in year
2008 2007
£ £
UK corporation tax
Research and development tax repayment (156,394) (136,017)
Income tax credit (156,394) (136,017)
Details of the unrecognised deferred tax asset are included in note 13.
Factors affecting the tax credit for the current period
The current tax credit for the year is lower (2007: lower) than the standard
rate of corporation tax in the UK of 28 per cent. (2007: 30 per cent.). The
differences are explained below:
2008 2007
Reconciliation of effective tax rate £ £
Loss for the year (594,065) (646,422)
Total income tax credit (156,394) (136,017)
Loss excluding income tax (750,459) (782,439)
Current tax at average rate of 29.67 per cent. (222,661) (234,732)
(2007: 30 per cent.)
Effects of:
Non-deductible expenses 632 3,118
Reduction in tax rate 38,861 -
Change in unrecognised timing differences 4,976 (41,302)
Current year losses for which no deferred tax 178,192 272,916
recognised
Tax incentives (156,394) (136,017)
Income tax credit (see above) (156,394) (136,017)
The corporation tax rate applicable to the company has changed from 30 per
cent. to 28 per cent. with effect from 1 April 2008.
Factors that may affect future tax charges
The effective tax rate in future years is expected to be below the standard
rate of corporation tax in the UK due principally to historical losses which
have been carried forward.
5. Loss on ordinary shares
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:
Basic
2008 2007
£ £
Loss after tax (594,065) (646,422)
Weighted average number of shares 17,828,562 14,030,748
Loss per share (3.33p) (4.61p)
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 not dilutive under the terms of IAS33.
6. Dividends
No dividends were paid or are proposed in respect of the year ended 31 May
2008.
7. IFRS Restatement Information
The Company's financial statements for the year ended 31 May 2008 are the
Company's first annual statements in compliance with adopted IFRSs.
There are no material differences between the figures previously presented
under UK GAAP and their restatement to adopted IFRSs.
8. Report and Financial Statements
Copies of the Report and Financial Statements will be posted to shareholders
next week.
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