Interim Results
To be embargoed until 7.00am
8 February 2007
Surface Transforms Plc ("Surface Transforms" or "the Company")
Interim results for the six months ended 30 November 2006
Surface Transforms plc, manufacturers of carbon fibre reinforced ceramic (CFRC)
materials, announces its interim results for the six months ended 30 November
2006.
Financial and business highlights:
* Koenigsegg Automotive are currently ordering ceramic brakes at the rate of
two car sets per month; Surface Transforms is now an authorised supplier to
Koenigsegg;
* Initial orders from StopTech Inc, a US brake system supplier;
* System ST brakes specified on the Ascari A10 supercar;
* Ken Baker OBE, joins as non executive director;
* Turnover £116,439 ( 2005: £68,302);
* Outstanding Order Bank currently stands at £146,636;
* Losses after tax £292,098 (30 November 2005: £384,511restated on adoption
of FRS20 "Share Based Payment); and
* Cash at 30 November 2006 was £1,473,062 equivalent to approximately 10.5
pence per share
For enquiries, please contact:
Surface Transforms plc John East & Partners Limited (Nomad)
Kevin Johnson 0151 472 3733 Simon Clements 020 7628 2200
Kevin D'Silva 07802 306956 David Worlidge
Teather & Greenwood Ltd (Broker)
Sindre Ottesen 0207 426 9000
Mark Dickenson
For further Company details visit www.surface-transforms.com, click on Armshare
CHAIRMAN'S STATEMENT
In my previous statement to shareholders, dated 17 August 2006, I highlighted
that the Company had to address two main challenges in the coming year and
these were:
* To gain at least one other significant automotive brake contract to operate
alongside the supply to Koenigsegg Automotive; and
* the completion of the ST Tech 2 production process so that it can deliver
brake discs more efficiently and at a lower unit cost.
I am pleased to inform shareholders that significant financial and operational
progress has been made by the Company over the six month period and details of
the progress we have made towards addressing these two challenges are included
below.
FINANCIAL REVIEW
In the six months to 30 November 2006, turnover was £116,439 (2005: £68,302).
This represents a 70 per cent. increase on the same period in 2005 and
principally reflects increased revenues from the supply of automotive brake
discs. Revenues in the period also include development project fees from two
aircraft brake system suppliers.
As at 30 November 2006, the outstanding order book (representing purchase
orders received by the Company for delivery within the current financial year)
amounted to £71,506. Since the year end the order book has grown significantly
and in mid January 2007 was £146,636. These orders represent brake discs for
aircraft and automotive clients, brake disc packs and preform carbon disc
components for the aircraft brake sector.
Losses after tax for the six month period were significantly reduced to £
292,098 (2005:- £384,511 Restated on adoption of FRS20 "Share Based Payments").
Shareholder's Funds at 30 November 2006 were £1,728,495 (30 November 2005: £
2,441,964) which included cash deposits of £1,473,062 (30 November 2005: £
2,102,064. 31 May 2006: £1,743,389). At 30 November 2006 cash represented
approximately 10.5 pence per share.
PRODUCTION & NEW TECHNOLOGY PROCESSES
Satisfactory progress is being made on the development and installation of the
proprietary carbon densification process, CVIST. Completion is scheduled for
early in the third quarter of 2007 and we expect to benefit from the lower
process times and manufacturing costs during the financial year beginning 1
June 2007.
Work is expected to start on improving the Company's silicon melt infiltration
process once the Company has completed the relocation of both its offices and
operations, which is expected to be in March 2007.
AUTOMOTIVE BRAKE SYSTEMS
There has been an increase in business activity in the past six months, which
has resulted in the achievement of some important milestones and new orders.
The success of the brake disc supply contract to Koenigsegg Automotive has
brought increased interest in the SystemST product from a number of high
performance car manufacturers in Europe as well as the USA.
Koenigsegg: (www.koenigsegg.sw)
Ceramic brake systems for 12 Koenigsegg CCX super cars have been delivered and
the supply rate is now approximately two car sets per month. Customer feedback
has been positive and has led Surface Transforms to become a 2007 Official
Supplier to this Swedish car manufacturer.
StopTech Inc ( www.stoptech.com)
StopTech is a California based leader in Balanced Brake Upgrades for production
cars and production-based racecars. StopTech's product line comprises mainly
OEM brake systems and Balanced Brake Upgrades for approximately 277 car
applications. StopTech is the performance engineering and manufacturing
division of Centric Parts. Centric is a California based company focused on
brake solutions for the traditional automotive aftermarket. Surface Transforms
and StopTech are working in partnership in the US automotive market to promote
the adoption of carbon ceramic brakes on high performance cars. An annual
supply contract has not yet been signed yet both companies forecast that in the
aftermarket between 50 to 100 car sets will be required in the next twelve
months. Initial evaluations have been successful and are ongoing; StopTech has
now placed the first production order and will soon be offering the SystemST
ceramic brake disc on selected vehicle offerings.
Ascari Cars Ltd ( www.ascari.co.uk)
Ascari is a supercar manufacturer based in Banbury, Oxfordshire. It has
selected SystemST's ventilated ceramic brake discs for the new Ascari A10 which
retails for £350,000. It has a five litre, 625 bhp, V8 engine with a maximum
speed of 215 mph.
A number of other automotive OEMs are currently purchasing brake discs in small
quantities and are evaluating performance with their cars. It is never easy to
predict customer uptake on new technology but there is undoubted interest.
AIRCRAFT BRAKE SYSTEMS
Revenues from the aircraft brake systems market sector are principally from
paid development contracts. The Company is engaged with three of the six global
suppliers of aircraft brake systems and development work from these contracts
has shown encouraging data on reduced wear and improved friction.
NEW PREMISES
During February 2007, the Company will be relocating to new premises at:
Unit 4 Olympic Park, Poole Hall Road, Ellesmere Port, Cheshire CH66 1ST.
(Tel: 0151 356 2141.)
The new premises are larger than the Companys' current premises and the move
allows the preform manufacturing, melt infiltration and CVIST production
processes to be housed together, thus improving manufacturing efficiencies.
OUTLOOK
We welcome Ken Baker to the board. Mr. Bakers' substantial and successful
experience in the management and development of listed engineering companies
will be important to the board as Surface Transforms executes its business plan
under the leadership of its Chief Executive, Dr. Kevin Johnson.
The Company is investigating a number of interesting opportunities, especially
in the automotive brake market and the board will report on these as they
arise.
Kevin D'Silva
Chairman
8 February 2007
Profit and Loss Account
for the six months ended 30 November 2006
(Unaudited)
(Unaudited) Restated Restated
Six months Six months (Audited)
ended ended Year ended
Note 30 November 30 November 31 May
2006 2005 2006
£ £ £
Turnover 116,439 68,302 155,177
Cost of sales (58,233) (33,120) (101,706)
Gross profit 58,206 35,182 53,471
Distribution costs (490) (463) (1,613)
Administrative expenses: (281,141) (307,303) (533,006)
Before development costs
Development costs (290,862) (280,683) (603,104)
Total administrative (572,003) (587,986) (1,136,110)
expenses
Other operating income 52,869 5,621 27,155
Operating loss (461,418) (547,646) (1,057,097)
Interest receivable 33,303 51,558 92,662
Loss on ordinary activities
before taxation (428,115) (496,088) (964,435)
Taxation on loss on ordinary 2 136,017 111,577 111,577
activities
Loss on ordinary activities
after
taxation and retained for (292,098) (384,511) (852,858)
the
financial period/year
Loss per ordinary share
Basic and diluted 3 (2.08p) (2.74p) (6.08p)
Comparative figures restated on the adoption of FRS20 "Share Based Payments"
BALANCE SHEET
AS AT 30 NOVEMBER 2006
(Unaudited) (Audited)
(Unaudited) Restated Restated
As at As at As at
30 November 30 November 31 May
2006 2005 2006
£ £ £
Fixed assets
Intangible assets 2,995 5,213 4,104
Tangible assets 164,812 173,629 170,156
167,807 178,842 174,260
Current assets
Stocks 120,638 143,100 124,335
Debtors 104,390 129,275 84,135
Cash at bank and in hand 1,473,062 2,102,064 1,743,389
1,698,090 2,374,439 1,951,859
Creditors:
Amounts falling due within one (137,402) (111,317) (129,014)
year
Net current assets 1,560,688 2,263,122 1,822,845
Net assets 1,728,495 2,441,964 1,997,105
Capital and reserves
Called up share capital 140,308 140,308 140,308
Share premium account 4,902,715 4,902,715 4,902,715
Other reserves 463,885 463,885 463,885
Profit and loss account (3,778,413) (3,064,944) (3,509,803)
Shareholders' funds 1,728,495 2,441,964 1,997,105
Comparative figures restated on the adoption of FRS20 "Share Based Payments".
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for THE six months ended 30 November 2006
(Unaudited) (Unaudited) (Audited)
Six months Restated Restated
ended
Six months Year
30 November
ended ended
2006
30 November 31 May
£
2005 2006
£ £
Loss for the financial period/ (292,098) (384,511) (852,858)
year
Total recognised gains and losses (292,098) (384,511) (852,858)
relating to the financial period/
year
Prior Year Adjustment (see note (62,584)
1)
Total recognised gains and losses (354,682)
recognised since the last annual
report
The Prior Year Adjustment relates to the adoption of FRS20 "Share Based
Payments" (see note 1)
Reconciliation of movements in shareholders' funds
for the six months ended 30 November 2006
(Unaudited) Restated Restated
Six months Six months Year
ended ended ended
30 November 30 November 31 May
2006 2005 2006
£ £ £
Loss for the period/year (292,098) (384,511) (852,858)
Charge in relation to Share Based 23,488 17,500 40,988
Payments
Net reduction in shareholders' (268,610) (367,011) (811,870)
funds
Opening shareholders' funds 1,997,105 2,808,975 2,808,975
Closing shareholders' funds 1,728,495 2,441,964 1,997,105
Cash flow statement
for THE six months ended 30 November 2006
(Unaudited) (Unaudited) (Audited)
Six months Six months Year
ended ended
ended
30 November 30 November 31 May
2006 2005 2006
Note £ £ £
Cash outflow from
operating activities 4 (431,100) (681,688) (1,070,539)
Returns on investments and
servicing of finance
Interest received and similar 33,303 62,885 103,989
income
Total returns on investments
and
servicing of finance 33,303 62,885 103,989
Taxation received 136,017 111,577 111,577
Capital expenditure
Purchase of tangible fixed (8,547) (118,762) (129,690)
assets
Total capital expenditure (8,547) (118,762) (129,690)
Cash outflow before
financing and management of
liquid resources (270,327) (625,988) (984,663)
Management of liquid
resources
Total Management of liquid 344,500 614,839 987,500
resources
Increase/(decrease) in cash 5 74,173 (11,149) 2,837
in the period/year
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
except as noted below.
In these financial statements the following new standards have been adopted for
the first time: FRS20 `Share-based payments'
The accounting policy under this new standard is set out below together with an
indication of the effects of its adoption.
Share based payments
The share option programme allows employees to acquire shares of the Company.
The fair value of options granted after 7 November 2002 and those not yet
vested as at the effective date of 1 June 2006 is recognised as an employee
expense with a corresponding increase in equity. The fair value is measured at
grant date and spread over the period during which the employees become
unconditionally entitled to the options. The fair value of the options granted
is measured using an option pricing model, taking into account the terms and
conditions upon which the options were granted. The amount recognised as an
expense is adjusted to reflect the actual number of share options that vest
except where forfeiture is only due to share prices not achieving the threshold
for vesting.
The corresponding amounts in these financial statements are restated in
accordance with the new accounting policy:
The effect of the adoption of FRS20 is set out below:
(Unaudited) (Audited)
Six months Year
ended ended
30 November 31 May
2005 2006
£ £
Retained loss as previously reported (367,011) (811,870)
Prior year adjustment in respect of FRS20 (17,500) (40,988)
Retained loss as restated (384,511) (852,858)
The comparative figures for the financial year ended 31 May 2006 are extracted
from 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 2006, was approved by
the Board on 8 February 2007.
2 Taxation
Analysis of credit in the period/year
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
30 November 30 November 31 May
2006 2005 2006
£ £ £
UK Corporation tax
Current tax on income
for the period - - -
Research and development
tax repayment 136,017 111,577 111,577
136,017 111,577 111,577
The effective rate of tax for the period/year is lower than the standard rate
of corporation tax in the UK of 30% principally due 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
2006 2005 2006
Pence Pence Pence
Loss per ordinary share:
Basic (2.08) (2.74) (6.08)
Diluted (2.08) (2.74) (6.08)
Loss per ordinary share is based on the Company's loss for the financial period
of £292,098 (30 November 2005: £384,511; 31 May 2006: £852,858).
The weighted average number of shares used in the basic calculation is
14,030,748 (30 November 2005: 14,030,748; 31 May 2006:14,030,748).
The calculation of diluted loss per ordinary share is identical to that used
for the basic loss per ordinary share.
4 Reconciliation of operating loss to net cash outflow from operating
activities
(Unaudited) (Unaudited) (Audited)
Six months Restated Six Restated Year
months ended
ended ended
30 November 30 November 31 May
2006 2005 2006
£ £ £
Total operating loss (461,418) (547,646) (1,057,097)
Depreciation and
amortisation charges 15,001 20,119 35,629
Decrease/(increase) in 3,697 (75,578) (56,813)
stock
(Increase)/decrease in (20,255) (59,611) (14,471)
debtors
Increase/(decrease) in
creditors 8,388 (36,472) (18,775)
Charge in relation to 23,487 17,500 40,988
share based payments
Net cash outflow
from operating (431,100) (681,688) (1,070,539)
activities
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
2006 2005 2006
£ £ £
Increase/(decrease) in
cash in
the period/year 74,173 (11,149) 2,837
(Decrease)/increase in (344,500) (614,839) (987,500)
liquid resources
Movement in net funds
in the period/year (270,327) (625,988) (984,663)
Net funds at the start
of the period/year 1,743,389 2,728,052 2,728,052
Net funds at the end of 1,473,062 2,102,064 1,743,389
the period/year
* Dividends
The directors are not proposing the payment of a dividend in respect of the six
months ended 30 November 2006.
7 Copies of interim results will be sent to shareholders shortly and will also
be available at the Company's registered office, Cheshire Innovation Park, Unit
306, Pool Lane, Ince, Cheshire CH2 4NU.
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