Interim Results
28 February 2006
Interim results for the six months ended 30 November 2005
Surface Transforms plc, manufacturers of carbon fibre reinforced ceramic (CFRC)
materials, announces its interim results for the six months ended 30 November
2005.
Financial and business highlights:
* Turnover of £68,302 (2004: £208,422)
* Losses before taxation of £478,588 (2004: £238,839)
* Strong cash position of £2.1 million (31 May 2005: £2.7 million),
representing approximately 15 pence per share
* £200,000 grant received to develop and complete the new generation
production process ST-Tech 2
* The Company is concentrating efforts on smaller, high performance car OEMs
and on the UK and German aftermarket for ceramic brakes
For enquiries, please contact:
Surface Transforms plc John East & Partners Limited
Kevin Johnson 0151 472 3733 Simon Clements 020 7628 2200
Julio Faria 0151 472 3733
Kevin D'Silva 07802 306956
Details of the Company's business and financial performance and its share price
can be found on www.armshare.com which is accessed from the Armshare icon on
www.surface-transforms.com.
Armshare has provided a webcast of these results and this is available on
www.surface-transforms.com under the Investor Relations icon.
SURFACE TRANSFORMS PLC
Interim results for the six months ended 30 November 2005
Surface Transforms plc, a manufacturer of carbon fibre reinforced ceramic
(CFRC) materials, announces its interim results for the six months ended 30
November 2005.
Chairman's statement
In the six months under review, the new management team, led by Dr. Kevin
Johnson, has been able to progress and accelerate plans in four principal areas
of the Company's operations:
* a strengthening of the intellectual property platform of the Company;
* the completion of the Company's next generation production process for
manufacturing
carbon ceramic brake discs;
* the development of a carbon ceramic disc brake for commercial aircraft in
conjunction with
a large US based aircraft brake system supplier; and
* the commercialisation of the Company's SystemST ceramic brake system for
high
performance cars.
FINANCIAL REVIEW
In the six months ended 30 November 2005 turnover was £68,302 (30 November
2004: £208,442). This is an increase of 37 per cent. from the £49,914 achieved
for the preceding six months, although the loss of the development contract
with Dunlop Aerospace means that it is less than for the comparative period in
2004. Revenues in the period under review comprised development fees from a US
aircraft brake system supplier, sales of ceramic rocket components to Roxel and
a small level of automotive ceramic brake discs, principally for testing.
Losses after tax for the period were £367,011 (30 November 2004: loss £
180,277), again reflecting the loss of the Dunlop Aerospace development
contract and the board's decision to strengthen both the management team and
the Company's operating capabilities and processes. When the current period is
compared to the £436,346 loss of the previous six month period ended 31 May
2005, it indicates that costs and expenditure have been stabilised. The
Directors do not anticipate overheads increasing beyond the current levels
until there is firm evidence of increased sales in the automotive brake disc
business.
Shareholder funds at 30 November 2005 amounted to £2,441,964 (31 May 2005: £
2,808,975) and include cash on deposit of £2.1 million (representing 15 pence
per share). Capital expenditure in the period was £118,762. The Company has no
borrowings.
SCIENCE & TECHNOLOGY
The £200,000 grant from the English Northwest Development Agency, announced on
15 November 2005, will be utilised in the development and completion of the new
generation production process ST-Tech 2.
Once completed, the new plant is expected to reduce the cost of producing
automotive discs significantly. The new plant has the design capacity to
produce up to 3,000 discs per annum. For larger volumes, the Company's business
model incorporates the sale and commissioning of the technology under licence
at the client's production site.
Capital expenditure on the new ST Tech 2 production system is anticipated to
fall mainly within the CVIST and MIST sub processes. Part of this expenditure
is specifically covered by the terms of the £200,000 grant. The new production
system is expected to be completed within 12 months.
The Company has submitted 3 new patent applications during the period in order
to supplement its existing patent portfolio.
AIRCRAFT BRAKE SYSTEMS
The Company maintains brake development programmes with three global suppliers
of aircraft brakes. There are two European clients and one is in the USA. There
has been extensive development work with the US client and Phase 1 of the
programme, comprising base measurements of wear and friction, are nearing
completion and the Directors anticipate this development work will continue in
the next twelve months.
Revenues arising from such development contracts are usually earned monthly or
quarterly; they are linked to project milestones and typically accrue over a
period of 6 to 18 months. The work is, by definition, developmental in nature,
and therefore it is difficult to forecast the timing of the eventual acceptance
of the first ceramic brake discs for commercial aircraft - nevertheless the
Company continues to maintain its development programme in this area given the
large target market.
AUTOMOTIVE BRAKING SYSTEMS
Whilst development of the commercial use of carbon ceramic brakes with the
larger automotive OEM companies continues, the Company has been focussing its
near term efforts on smaller, high performance car OEMs and on the UK and
German aftermarket for ceramic brakes.
SystemST, the Company's proprietary brand, has significant product advantages
and differentiation over its competitors. The SystemST ceramic brakes can be
used for both track and road applications due to the inherent strength of the
CFRC construction and recent track days at the Anglesey race track have
confirmed the Company's product specification. The www.systemST.com website
displays the latest testing results.
The introduction of a new, high technology product is never straightforward
particularly in terms of customer uptake. Nevertheless, evaluation programmes
are advancing with a number of UK car manufacturers. Early successes are
evidenced by initial brake disc orders received from Weber Sportcars in
Switzerland, which is building a £300,000 plus supercar for launch later this
year.
Koenigsegg Automotive of Sweden (www.koenigsegg.com) has purchased and is
evaluating the Company's ceramic brakes for installation on its supercars. The
800bhp CCR supercar set new records as Europe's fastest production car in 2005.
A new model the CCX is being shown at the Geneva Motor Show in early March and
it is fitted with SystemST. The Company's progress in the performance brake
aftermarket has been slower than predicted. Sales in the German market have
been very disappointing and as a result the business development contract with
METEK is being terminated and the intention is to enter into a replacement
trading arrangement.
In the UK, SystemST brakes have been initially targeted at Porsche and Ferrari
users. Prospective UK clients are currently directed to the Company's brake
fitting partners for fitting and purchase. Sales are still at a very low level
and the board's expectation is that it will take some time to reach targeted
volumes. Nevertheless, some of our shareholders have already purchased ceramic
brakes for their high performance cars and today the Company has launched a
special introductory promotion for ceramic brakes for all UK shareholders who
have cars that would benefit from the use of ceramic brake systems. A separate
letter dealing with this attractive promotion accompanies this statement and is
being mailed to all shareholders and can be viewed on the www.systemST.com
website.
PEOPLE
Peter Holland has been instrumental in guiding the reshaping of the Company in
the past two years and with his retirement from the board, the Company would
like to record its appreciation of that contribution.
We completed the enlargement of our new management team during December 2005.
Dr. Maria Hadjisoteriou, BSc, PhD, joined the Company as Operations Manager in
charge of all the production processes.
Our planned growth is based on selecting and retaining a strong,
entrepreneurial management team and I take this opportunity of thanking all my
colleagues for their hard work and enthusiasm in creating an environment of
trust and opportunity for professional growth.
OUTLOOK
Despite the lower sales and financial performance in the period under review,
the board believes it has made material progress in both reducing the business
risk in the Company and in improving the capability of successfully
implementing its business strategy. This is already reflected in the quality of
the discussions we are having with potentially important commercial partners.
Looking ahead, we expect in the short to medium term to demonstrate the first
commercial success in the automotive brake market with one of the smaller high
performance, car OEMs.
Kevin D'Silva
Chairman
28 February, 2006
PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED 30 NOVEMBER 2005
(Unaudited) (Unaudited)
Six months Six months (Audited)
ended ended Year ended
Note 30 November 30 November 31 May
2005 2004 2005
£ £ £
Turnover 68,302 208,422 258,336
Cost of sales (33,120) (60,581) (93,846)
Gross profit 35,182 147,841 164,490
Distribution costs (463) (751) (1,348)
Administrative expenses: (299,775) (239,158) (500,574)
Before development costs
Development costs (270,711) (209,079) (472,978)
Total administrative (570,486) (448,237) (973,552)
expenses
Other operating income 5,621 - 4,980
Operating loss (530,146) (301,147) (805,430)
Interest receivable 51,558 63,528 131,480
Interest payable - (1,220) (1,235)
Loss on ordinary activities
before taxation (478,588) (238,839) (675,185)
Taxation on loss on 2 111,577 58,562 58,562
ordinary activities
Loss on ordinary activities
after
taxation and retained for (367,011) (180,277) (616,623)
the
financial period/year
Loss per ordinary share
Basic and diluted 3 (2.62p) (1.33p) (4.47p)
All amounts relate to continuing activities.
BALANCE SHEET
AS AT 30 NOVEMBER 2005
(Unaudited) (Unaudited) (Audited)
As at As at As at
30 November 30 November 31 May
2005 2004 2005
£ £ £
Fixed assets
Intangible assets 5,213 7,431 6,322
Tangible assets 173,629 64,813 73,877
178,842 72,244 80,199
Current assets
Stocks 143,100 77,748 67,522
Debtors 129,275 191,838 80,991
Cash at bank and in hand 2,102,064 3,035,932 2,728,052
2,374,439 3,305,518 2,876,565
Creditors:
Amounts falling due within one (111,317) (132,441) (147,789)
year
Net current assets 2,263,122 3,173,077 2,728,776
Net assets 2,441,964 3,245,321 2,808,975
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 463,885 520,399 463,885
Profit and loss account (3,064,944) (2,318,101) (2,697,933)
Equity shareholders' funds 2,441,964 3,245,321 2,808,975
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE SIX MONTHS ENDED 30 NOVEMBER 2005
(Unaudited) (Unaudited) (Audited)
Six months Six months Year
ended ended ended
30 November 30 November 31 May
2005 2004 2005
£ £ £
Loss for the financial period/year (367,011) (180,277) (616,623)
Unrealised gain on the lapse of - - 56,514
warrants
Total recognised gains and losses (367,011) (180,277) (560,109)
for the financial period/year
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR THE SIX MONTHS ENDED 30 NOVEMBER 2005
(Unaudited) (Unaudited) (Audited)
Six months Six months Year
ended ended ended
30 November 30 November 31 May
2005 2004 2005
£ £ £
Loss for the period/year (367,011) (180,277) (616,623)
New share capital issued
(net of issue costs) - 155,563 155,563
Net reduction in shareholders' (367,011) (24,714) (461,060)
funds
Opening shareholders' funds 2,808,975 3,270,035 3,270,035
Closing shareholders' funds 2,441,964 3,245,321 2,808,975
CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 NOVEMBER 2005
(Unaudited) (Unaudited) (Audited)
Six months Six months Year
ended ended ended
30 November 30 November 31 May
2005 2004 2005
Note £ £ £
Cash outflow from
operating activities 4 (681,688) (240,482) (581,555)
Returns on investments and
servicing of finance
Interest received and similar 62,885 52,778 118,918
income
Total returns on investments
and
servicing of finance 62,885 52,778 118,918
Taxation received 111,577 58,562 58,562
Capital expenditure
Purchase of tangible fixed (118,762) (30,828) (63,775)
assets
Total capital expenditure (118,762) (30,828) (63,775)
Cash outflow before
financing and management of
liquid resources (625,988) (159,970) (467,850)
Management of liquid
resources
Cash transferred from/
(placed) on
treasury deposit 614,839 (252,247) 3,000
Total management of liquid
resources 614,839 (252,247) 3,000
Financing
Issue of ordinary share - 8,150 8,150
capital
Premium from issue of
ordinary share
capital (net of issue costs) - 327,750 327,750
Premium on exercise of - 152,163 152,163
warrants
Total financing - 488,063 488,063
(Decrease)/increase in cash 5 (11,149) 75,846 23,213
in the period/year
1 Basis of preparation
The interim financial statements have been prepared on the basis of the
accounting policies set out in the Company's last Annual Report and Accounts.
The comparative figures for the financial year ended 31 May 2005 are not the
company's statutory accounts for that financial year. Those accounts have been
reported on by the company's auditors and delivered to the registrar of
companies. The report of the auditors was unqualified and did not contain a
statement under section 237 (2) or (3) of the Companies Act 1985.
The interim report for the six months ended 30 November 2005, was approved by
the Board on 27 February 2006.
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
2005 2004 2005
£ £ £
UK Corporation tax
Current tax on income
for the period - - -
Research and development
tax repayment 111,577 58,562 58,562
111,577 58,562 58,562
The effective rate of tax for the period/year of nil is lower than the standard
rate of corporation tax in the UK of 30% 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 2005 30 November 31 May
2004 2005
Pence Pence Pence
Loss per ordinary share:
Basic (2.62) (1.33) (4.47)
Diluted (2.62) (1.33) (4.47)
Loss per ordinary share is based on the Company's loss for the financial period
of £367,011 (30 November 2004: £180,277; 31 May 2005: £616,623).
The weighted average number of shares used in the basic calculation is
14,030,748 (30 November 2004: 13,581,249; 31 May 2005:13,805,406).
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 Six months Year
ended ended ended
30 November 30 November 31 May
2005 2004 2005
£ £ £
Total operating loss (530,146) (301,147) (805,430)
Depreciation and
amortisation charges 20,119 23,161 48,153
(Increase)/decrease in (75,578) 10,935 21,161
stock
(Increase)/decrease in (59,611) (7,577) 103,847
debtors
(Decrease)/increase in
creditors (36,472) 34,146 50,714
Net cash outflow
from operating (681,688) (240,482) (581,555)
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
2005 2004 2005
£ £ £
(Decrease)/increase in
cash in
the period/year (11,149) 75,846 23,213
(Decrease)/increase in (614,839) 252,247 (3,000)
liquid resources
Movement in net funds
in the period/year (625,988) 328,093 20,213
Net funds at the start
of the period/year 2,728,052 2,707,839 2,707,839
Net funds at the end of 2,102,064 3,035,932 2,728,052
the period/year
* Dividends
The directors are not proposing the payment of a dividend in respect of the six
months ended 30 November 2005.
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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