Final Results

Surface Transforms PLC
04 August 2004


4 August 2004

               Preliminary results for the year ended 31 May 2004

Surface Transforms plc, manufacturers of carbon fibre reinforced ceramic (CFRC)
materials, announces its preliminary results for the year ended 31 May 2004.

Financial and business highlights:

  • Prestigious contract wins from Dunlop Aerospace and the United States
    Airforce Research Laboratory, and more recently with the German automotive
    brake systems supplier METEK and a development contract with the UK Ministry
    of Defence

  • Turnover increased by 79% to £428,608 (2003: £239,755)

  • Operating losses on ordinary activities reduced by 77% to £256,972
    (2003: loss £1,129,909)

  • Raised £2.7 million after expenses, significantly strengthening the
    Company's balance sheet

  • Expanded team by hiring new managerial and technical staff

Kevin D'Silva, Chairman of Surface Transforms, said:

'This has been a year of strong progress. We have key contracts in place in our
target aerospace and automotive markets and, following the £2.7 million
fundraising in April, have the financial strength to deliver our business
objectives.

'We're happy with the way the Company is now structured and financed, leaving us
free to focus on meeting the development milestones on our contracts, as well as
having the resources in place to explore additional commercial opportunities for
our carbon fibre ceramic materials.'

For enquiries please contact:

Julio Faria                                   Neil Boom/Sophie Betts
Managing Director                             Gresham PR Ltd.
Surface Transforms plc                        020 7404 9000
01928 735 498

Johnny Townsend/Simon Clements
John East & Partners Limited
020 7628 2200


Chairman's Statement

We have continued to make progress towards our goal, which is the profitable
commercial exploitation of our carbon fibre reinforced ceramic (CFRC) materials.
The most important events during the past year were the signing of key
agreements with Dunlop Aerospace, the United States Air Force Research
Laboratory (USAF), the UK Ministry of Defence (UK MoD) and, more recently, with
the European automotive brake systems supplier METEK.

A particularly interesting development was the MoD contract announced in May
2004, in which the MoD is investigating the potential of our CFRC materials for
use in body armour. This could be a new income stream for Surface Transforms'
technology which until now has been predominantly from sales relating to
friction applications.

Our new business model adopted around a year ago has delivered successful
entries into all our target aerospace, automotive and anti-ballistic materials
markets. As revenues are now increasing and costs have been reduced, our
operational and financial position has steadily improved. The Company's working
capital and balance sheet have also been strengthened by the fundraising in
April, which raised £2.7 million after expenses and introduced new financial
institutions to our shareholder base.

Financial Review

The Company's financial results for the year ended 31 May 2004 show a
significant improvement on the comparable period last year.

Turnover increased by 79% to £428,608 (2003: £239,755), while operating losses
on ordinary activities were lower at £256,972 (2003: loss £1,129,909) and the
Company's cash and working capital position has improved markedly. In addition,
the reduction in operating losses is a result of improved financial cost
control.

Losses after tax were also lower at £129,524 (2003: loss £964,382), reflecting
Research and Development tax credits of £119,685 (2003: £158,850).

On 30 April 2004, the Company announced the Placing of 4,142,859 new Ordinary
shares at 70 pence per share. The net proceeds of the Placing were £2.7 million
of which £2.4 million was received in late May 2004. The remaining £332,500 was
received in late July and is included in debtors at 31 May. The Placing has 
provided the resources to expand our management and technical teams and working 
capital to accelerate the expansion of the business.

At 31 May 2004 the Company held cash and deposits of £2,707,839 (2003:£178,175). 
Surface Transforms continues to have no bank borrowings.


OPERATING ACTIVITIES

AIRCRAFT BRAKES

In November 2003, Surface Transforms signed a major licensing contract with
aircraft braking systems supplier Dunlop Aerospace to develop systems for a
designated large commercial airliner. This contract is the first application of
the Company's CFRCs in the commercial global aircraft industry. The recent sale
of Dunlop Aerospace in July 2004 to Meggitt Plc, the British aerospace and
defence company, does not alter the terms of the agreement with Surface
Transforms.

The work, to complete a material development programme and to design, install
and commission a CFRC brake disc production plant at Dunlop's plant in Coventry,
is advancing well. The first certification flight is scheduled for 2006. If the
CFRC brake receives its certification from the Civil Aviation Authority for the
specified airliner, Dunlop will initiate the supply of CFRC brakes manufactured
under a previously announced licence agreement with Surface Transforms. This
would secure long-term payments for the Company.

AUTOMOTIVE

Surface Transforms continues to develop applications within the automotive
industry. In June 2004, the Company signed a two-year Cooperative Agreement
initially worth Euro 60,000 with leading German automotive brake parts supplier
METEK Metallverarbeitung GmbH of Meckenheim. The contract is for the design,
development and supply of carbon ceramic brake discs and pads to METEK for use
on high-performance and luxury European road cars.

Entry into the road car market has long been one of the Company's stated
objectives. Therefore, the METEK contract represents an important commercial
landmark. We estimate that if carbon ceramic brake technology is adopted by
major car manufacturers who now use steel or cast iron brake pads and discs, it
is likely that we can achieve penetration of between one and three per cent of a
total market valued at Euro 3.5 billion.

Initial road car testing of Surface Transforms' materials at METEK has shown 
that CFRCs offer significant advantages over traditional cast iron brake discs 
with organic pads.  METEK's booth at the European Motor Show in Essen, Germany 
in November 2004 will be the first occasion at which our new disc and brake 
systems will be on display, and will allow comparison of the performance of our 
systems with iron and other carbon ceramic brakes.

We have begun a targeted marketing programme addressing the European automobile 
industry. The marketing programme is to raise awareness of the benefits of our 
ceramic brake disc technology, which we believe is inherently superior to the 
ceramic rotor and pad systems currently used on some high performance European 
road cars.

AEROSPACE COMPONENTS

Since January this year, work on the Roxel (Rocket Motors) programme has
accelerated at Roxel's UK and French locations. In the past six months further
CFRC components have been despatched to Roxel UK for rocket nozzle applications.
It is the first time Roxel France (formerly Celerg, a division of the French
Company SNPE) has used CFRC parts for a fuel valve assembly.

Currently Roxel and Surface Transforms are investigating the details of a closer
collaboration, not only for the supply of additional components but also for the
generation of specific design data to characterise the performance of our
material in the hostile environment of the rocket motor.

In September 2003, Surface Transforms signed its first development contract with
the United States Air Force Research Laboratory (USAF) for the supply of
prototype CFRC materials. Since signing the agreement, the project has
progressed well. It is currently on schedule and on budget. This contract was
for 12 months. Extension of this contract is dependent on budget constraints at
USAF but we have received very encouraging feedback from the extensive testing
that has occurred during the first part of the contract.


NEW APPLICATIONS FOR CFRC TECHNOLOGY

BALLISTICS

In May this year the Company was awarded a contract worth around £40,000, by the
UK Ministry of Defence for the development and testing of anti-ballistic
materials for use in infantry body armour and possibly as an anti-ballistic
'skin' for armoured personnel carriers and weapon platforms.

Preliminary investigations show that our CFRCs offer protection against repeat
hit high-power rifle shot, as well as weight saving advantages compared with
standard alumina ceramic armour plates. Work is expected to be completed by
around March 2005, subject to satisfactory product performance. The directors
anticipate that if the performance is acceptable it should lead initially to
commercial orders for body armour.

TECHNOLOGY

Non-executive director Professor David Clark continues to provide guidance to
the technology team and he has recently completed an in-house review of the
Company's technology and its comparative positioning within the world market. We
have also recently commissioned two detailed market and technical research
projects in the fields of aircraft brake systems and European automotive brakes
and clutches.

In terms of other new developments, two new patent applications for additional
products and processes in the area of CFRCs are being prepared in readiness for
expected submission by the end of this calendar year.

MANAGEMENT

Following the successful fundraising we have strengthened our technical and
management teams, and will continue to do so. Dr. Kevin Johnson, PhD, MBA (aged
32), an industrial chemist with substantial experience, has joined as Operations
Director. His appointment will be followed by the recruitment of three more
technical executives in the areas of materials science and application
engineering. The first of these appointments has already been made with Geoff
Whitfield, a composites and aeronautical engineer, joining later this month. We
expect to fill the remaining positions by the end of the year.

The sales team will be strengthened by the appointment of a senior sales
executive to assist Julio Faria and Dr. Geoff Gould in developing and growing
the business. This appointment will be made after the completion of the market
research projects on the aircraft and road car brake markets described above.

Kate Hickman, formerly Operations Manager, has reduced her full-time involvement
and is now employed as a consultant for one week per month. Kate has been with
Surface Transforms for six years and her contribution to the development of our
CFRC technology has been outstanding. We are delighted that she continues to
apply her great enthusiasm and talents to the business.


OUTLOOK

This has been a year of strong progress. We now have key contracts in place in
our target aerospace and automotive markets and, following the £2.7 million
fundraising in April, have the financial strength to deliver our business
objectives.

We are happy with the way the Company is structured and financed, leaving us
free to focus on completing work on our key contracts, as well as having the
resources in place to explore additional commercial opportunities for our
materials. The agreements that Surface Transforms has currently signed have the
potential to bring in significant repeat revenues and it is our priority to
ensure the development milestones are met on time and to standard.

The success of the fundraising will allow the Company to achieve these aims. It
also provides the capital to accelerate the development of our CFRC technology
and invest in management and technical infrastructure which in turn will ensure
that the higher levels of business activity are supported.

We are now moving towards the goal set out in our business model to develop
Surface Transforms into a company with first class technical, product
development and business development capabilities.

There is a high level of confidence within the Company, shared by employees and
directors alike. Our recent new contract wins reflect the dedication and
integrity of all employees. I would like to thank my board colleagues and
talented staff for their hard work and commitment during a year of strong
progress.

Kevin D'Silva
Chairman
3 August 2004


Details of the Company's business and financial performance, its share price
history and the latest published commercial news can be found on the ArmShare
icon which can be reached via www.surface-transforms.com. Analyst reviews of the
Company are available on 'Company Review' and 'Other Commentaries' on the
ArmShare website.



                             SURFACE TRANSFORMS PLC
                             PROFIT & LOSS ACCOUNT
                         FOR THE YEAR ENDED 31 MAY 2004

                                           Note       2004             2003
                                                         £                £

Turnover                                           428,608          239,755
Cost of sales (including exceptional
items
£nil (2003: £293,048))                        4   (117,461)        (398,862)

Gross profit/(loss)                                311,147         (159,107)

Distribution costs                                  (1,261)          (2,552)

Administrative expenses:
Before development costs                          (473,479)        (617,644)
Development costs                                 (123,349)        (350,606)

Total administrative expenses                     (596,828)        (968,250)

Other operating income                              29,970                -

Operating loss                                    (256,972)      (1,129,909)
                                                  
Interest receivable and similar income               7,763            6,677

Loss on ordinary activities
before taxation                                   (249,209)      (1,123,232)
Tax on loss on ordinary activities                 119,685          158,850

Loss on ordinary activities after
taxation and retained for the
financial year                                    (129,524)        (964,382)

Loss per ordinary share
Basic and diluted                             3     (1.36p)         (10.86p)


All amounts relate to continuing activities.

The company has no gains or losses in either the current or preceding year other
than those reported above.




                             SURFACE TRANSFORMS PLC
                                 BALANCE SHEET
                               AS AT 31 MAY 2004

                                                2004                   2003
                                      £            £         £            £
Fixed assets
Intangible assets                              8,540                 10,758
Tangible assets                               56,037                 97,893

                                              64,577                108,651
Current assets
Stocks                           88,683                 70,068
Debtors                         506,011                294,387
Cash at bank and in hand      2,707,839                178,175

                              3,302,533                542,630

Creditors: amounts falling
due within one year             (97,075)               (77,608)

Net current assets                         3,205,458                465,022

Net assets                                 3,270,035                573,673

Capital and reserves
Called up share capital                      132,158                 93,799
Share capital to be issued                     4,750                      -
Share premium account                      4,750,552              1,967,775
Other reserves                               520,399                520,399
Profit and loss account                   (2,137,824)            (2,008,300)

Equity shareholders' funds                 3,270,035                573,673




                             SURFACE TRANSFORMS PLC
                              CASH FLOW STATEMENT
                         FOR THE YEAR ENDED 31 MAY 2004

                                                  2004              2003
                                                     £                 £
Reconciliation of operating loss to net
cash flow from operating activities

Operating loss                                (256,972)       (1,129,909)
Depreciation charge                             42,674            41,628
Amortisation charge                              2,218             2,218
Profit on sale of fixed assets                       -              (100)
(Increase)/decrease in stocks                  (18,615)          268,103
Increase in debtors                            (37,974)          (58,703)
Increase/(decrease) in creditors                19,467           (40,834)

Net cash outflow from operating activities    (249,202)         (917,597)


                                                       2004           2003
                                                          £              £
Cash flow statement

Cash flow from operating activities                (249,202)      (917,597)
Return on investments and servicing of finance        7,763          6,677
Taxation                                            278,535              -
Capital expenditure                                    (818)        (9,045)

Cash inflow/(outflow) before financing
and management of liquid resources                   36,278       (919,965)
Management of liquid resources                   (2,635,000)             -
Financing                                         2,493,386        958,545

(Decrease)/increase in cash in the year            (105,336)        38,580


                                                    2004                  2003
                                                       £                     £
Reconciliation of net cash flow
to movement in net funds

(Decrease)/increase in cash in the year         (105,336)               38,580
Increase in liquid resources                   2,635,000                     -

Movement in net funds in the year              2,529,664                38,580
Net funds at the start of the year               178,175               139,595

Net funds at the end of the year               2,707,839               178,175




                             SURFACE TRANSFORMS PLC
               Reconciliation of movements in shareholders' funds
                         FOR THE YEAR ENDED 31 MAY 2004

                                                       2004           2003
                                                          £              £

Loss for the financial year                        (129,524)      (964,382)
New share capital subscribed (net of issue costs) 2,825,886        958,545

Net addition to/(reduction in)
shareholders' funds                               2,696,362         (5,837)
Opening shareholders' funds                         573,673        579,510

Closing shareholders' funds                       3,270,035        573,673


SURFACE TRANSFORMS PLC

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 2004 or 2003. The financial
information for 2003 is derived from the statutory accounts for 2003 which have
been delivered to the registrar of companies. The auditors have reported on the
2003 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 2004
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 accounting policies have been applied consistently in dealing with items
which are considered material in relation to the Company's financial statements.
The financial statements have been prepared in accordance with applicable
accounting standards and in accordance with the historical cost convention.

3.   Loss per 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:

Basic                                     2004                     2003
                                             £                        £

Loss after tax                        (129,524)                (964,382)

Weighted average number of shares    9,506,297                8,882,861

Loss per share                           1.36p                   10.86p

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 warrants and
options would have the effect of reducing the loss per ordinary share and is
therefore not dilutative under the terms of FRS14.

4.   Exceptional items

Following Formula 1 regulatory changes introduced during the previous year which
restricted the supply of products to that market, the directors decided to
terminate all ongoing Formula 1 development. This resulted in a Formula 1 stock
write down of £293,048 in the prior year.

5.   Report and Accounts

Copies of the Report and Accounts will be posted to shareholders shortly and
will be available from the Company's registered office at April House, Tarvin
Road, Frodsham, Cheshire WA6 6XN



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