Interim Results
Surface Transforms PLC
24 February 2004
24 February 2004
Interim results for the six months ended 30 November 2003
Surface Transforms plc, manufacturers of carbon fibre reinforced ceramic (CFRC)
materials, announces its interim results for the six months ended 30 November
2003.
Financial and business highlights:
• Turnover increased by 66% to £175,481 (30 November 2002: £105,475)
• Operating losses significantly reduced to £161,742 (30 November 2002:
£797,272)
• Increased cash balances of £319,464 (31 May 2003: £178,175) through
improved trading and receipt of R&D tax credits
• Two prestigious new contract wins with Dunlop Aerospace and the United
States Air Force Research Laboratory
• Sound progress made since the introduction of new business model to
maximise commercial use of CFRC technology
• Continued investment in developing proprietary technology
Kevin D'Silva, Chairman of Surface Transforms, comments:
'The speed of progress since last September has been encouraging. The landmark
aircraft brake agreement with Dunlop Aerospace ratified the commercial potential
of the Company's CFRC technology and endorsed the effectiveness of our new
business strategy. We now have in place most of the key elements that allow the
Company to commence confidently the next phase of growth.'
For enquiries please contact:
Julio Faria Neil Boom
Managing Director Managing Director
Surface Transforms plc Gresham PR Ltd.
01928 735 498 020 7404 9000
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.
Chairman's Statement
In the six months ended 30 November 2003, we made sound progress following a
previously reported strategic review that led to a new business model aimed at
maximising the commercial exploitation of our proprietary carbon fibre
reinforced ceramic technology (CFRC).
Following the review, we have successfully implemented a number of key changes
addressing costs, management, staff, products, commercial strategy and sales. We
are now pleased to report further progress towards our goal of exploiting the
inherent flexibility of our technology and applying it to a broader range of
applications in target markets. Our target markets embrace commercial and
military aircraft brake systems, rocket motor systems, clutch applications in
Formula 1, high performance and GT cars and a number of other industrial and
defence applications.
I am delighted that we have secured two notable aerospace contracts in the six
months under review. These new contracts reflect Surface Transforms' progress
both in the development of our technology and the management's commercial focus.
As a result of new revenue streams and tighter cost controls, there has been a
significant improvement in our financial position since the end of the previous
period.
Furthermore, we have begun to widen the Company's prospects in other CFRC
applications. Shareholders will be updated on new prospects once contracts or
significant developments have been negotiated.
Financial results
The Company's financial results have improved markedly from the comparable
period last year. For the six months ended 30 November 2003, turnover increased
by 66% to £175,481 (30 November 2002: £105,475). Operating losses were sharply
lower at £161,742 (30 November 2002: £797,272). Losses after tax were
considerably lower at £39,424 (30 November 2002: £794,037). The substantial
improvement in after tax losses reflects R&D tax credits amounting to £119,685.
The reduction in operating losses and the improvements in the Company's cash and
working capital positions are a result of the successful execution of the new
business model.
Improved trading and the receipt of R&D tax credits have increased the cash
balance at 30 November 2003 to £319,464 (31 May 2003: £178,175). The Company has
no borrowings.
Operating Activities
AIRCRAFT BRAKES
On 28 November 2003, a major development and licensing agreement was signed with
Dunlop Aerospace, a global leader of aircraft braking systems and services to
the aerospace industry. This contract is aircraft specific, and is the first
planned application of the Company's CFRC technology within the global
commercial aircraft industry. The contract also underscores the technical
advantages that our CFRC technology can offer over rival technologies.
Once brake development has been completed in partnership with Dunlop Aerospace,
and if the CFRC brake becomes certified for the designated commercial airliner,
this contract will allow Dunlop Aerospace to supply CFRC brakes manufactured
under a 10-year licence agreement with Surface Transforms.
We hope that this contract will be the first of many subsequent development and
licensing agreements for the use of the Company's CFRC brake technology on a
range of civil and military aircraft
AEROSPACE COMPONENTS
On 11 September 2003, Surface Transforms signed its first development contract
with the United States Air Force Research Laboratory for the supply of
development, prototype CFRC materials. The contract is worth initially US$50,000
and although the intended applications for the material supplied are
confidential, CFRC materials have technical properties that potentially have
considerable advantages when used in next generation military aircraft material,
exhaust components and braking systems. Since signing this development contract,
we have delivered our first extensive test reports to the USAF.
AUTOMOTIVE
The Company provides collaborative development and testing of CRFC brake discs
to a leading European supplier of complete braking systems. It is expected that
after the initial stages, this activity, if successful, may lead to a commercial
cooperation to supply CFRC braking systems to leading automobile manufacturers
in Europe. Progress will be reported once milestones and commercial agreements
have been reached.
TECHNOLOGY
Surface Transforms continues to invest in expanding and developing its
proprietary technology. One new patent application has been filed in recent
months.
In October 2003, a new, multi-phase research project was started, partly
financed by the Business Link scheme. This project is to develop a new design
combination for a road car brake disc and pad.
Management
The senior management team and board have worked together as a new team since
September 2003, with Johannah Stretton joining in October as Financial
Controller and Company Secretary. She has recently completed a comprehensive
review of financial procedures, costs and cost control.
Unusually for a small, listed company all five members of the board, both
executive and non-executive, have extensive industrial and technical backgrounds
correlating in part to the technology and operations of the Company. Each
non-executive director occupies a lead mentoring role in each of three important
aspects of the business. This style harnesses the considerable experience of the
non-executive director directly to key management aspects of the Company without
hindrance to the role of the executive management. Professor David Clark is able
to provide the scientific direction for the Company as he is a world authority
on composite materials exhibiting light weight and high energy dissipation
capabilities. Peter Holland is responsible for the Business Development efforts
focussing on achieving customer and marketing milestones and targets. I assist
management with guidance on general operating and financial matters.
Outlook
The landmark agreement within the aircraft braking market ratifies the potential
of the Company's CFRC technology and positions the business financially and
commercially in order to commence the next phase of its expansion.
The board has targeted the automotive brake, aerospace materials and anti
ballistic products sectors as areas where the next collaborative development
ventures will be made. At the same time we are continuing to seek further
applications for our CFRC materials.
The Company has earned an enviable reputation for being an attractive employer
in the region. Our intention is to attract additional technical and
industry-specific business development personnel to accelerate progress in the
new target markets. In line with our improving financial resources, we have
started an operational programme designed to reduce product processing time and
improve our flexibility to meet the needs of customers. At Surface Transforms
our priority is to ensure our CFRC technology always improves quality and adds
value.
Finally, the speed of progress within the Company since last September has been
very encouraging. There are challenges ahead, but the confidence within the
Company is based on the integrity and the positive approach of all its
employees. I wish to thank them all.
Kevin D'Silva
Chairman
SURFACE TRANSFORMS PLC
PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED 30 NOVEMBER 2003
(Unaudited) (Unaudited) (Audited)
Six months Six months Year ended
ended ended
Note 30 November 30 November 31 May
2003 2002 2003
1 As restated
£ £ £
Turnover 175,481 105,475 239,755
Cost of sales (including
exceptional items
£Nil) year ended 31 May 1 (65,749) (251,593) (398,862)
2003:£293,048)) --------- ---------- ----------
Gross profit/(loss) 109,732 (146,118) (159,107)
Distribution costs (693) (766) (2,552)
Administrative expenses
before
development costs (256,289) (376,348) (617,644)
Development costs (44,462) (274,040) (350,606)
Other operating income 29,970 - -
--------- ---------- ----------
Operating loss (161,742) (797,272) (1,129,909)
Interest receivable and 2,633 3,235 6,677
similar income --------- ---------- ----------
Loss on ordinary
activities
before taxation (159,109) (794,037) (1,123,232)
Taxation on loss on ordinary 2 119,685 - 158,850
activities
--------- ---------- ----------
Loss on ordinary
activities
after taxation (39,424) (794,037) (964,382)
Dividends paid and - - -
proposed
--------- ---------- ----------
Retained loss for the period (39,424) (794,037) (964,382)
/year ========= ========== ==========
Loss per ordinary share
Basic and diluted 3 (0.42p) (9.46p) (10.86p)
========= ========== ==========
The Company's operating loss arises from continuing operations.
The Company has no recognised gains or losses in these periods/years other than
those reported above and therefore no statement of total recognised gains and
losses has been presented.
SURFACE TRANSFORMS PLC
BALANCE SHEET
AS AT 30 NOVEMBER 2003
(Unaudited) (Unaudited) (Audited)
As at As at As at
30 November 30 November 31 May
2003 2002 2003
£ £ £
Fixed assets
Intangible assets 9,649 12,111 10,758
Tangible assets 77,254 124,311 97,893
----------- ---------- ----------
86,903 136,422 108,651
----------- ---------- ----------
Current assets
Stocks 79,330 139,388 70,068
Debtors 212,341 79,112 294,387
Cash at bank and in hand 319,464 533,878 178,175
----------- ---------- ----------
611,135 752,378 542,630
----------- ---------- ----------
Creditors:
Amounts falling due within one year (114,352) (118,349) (77,608)
----------- ---------- ----------
Net current assets 496,783 634,029 465,022
----------- ---------- ----------
Net assets 583,686 770,451 573,673
=========== ========== ==========
Capital and reserves
Called up share capital 94,441 93,624 93,799
Share premium account 2,016,570 1,994,383 1,967,775
Other reserves 520,399 520,399 520,399
Profit and loss account (2,047,724) (1,837,955) (2,008,300)
=========== ========== ==========
Equity shareholders' funds 583,686 770,451 573,673
=========== ========== ==========
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR THE SIX MONTHS ENDED 30 NOVEMBER 2003
(Unaudited) (Unaudited) (Audited)
Six months Six months Year ended
ended ended
30 November 30 November 31 May
2003 2002 2003
£ £ £
Loss for the period/year (39,424) (794,037) (964,382)
New share capital issued
(net of issue costs) 49,437 984,978 958,545
---------- ---------- ----------
Net addition/(reduction)
to shareholders' funds 10,013 190,941 (5,873)
Opening shareholders' funds 573,673 579,510 579,510
---------- ---------- ----------
Closing shareholders' funds 583,686 770,451 573,673
========== ========== ==========
SURFACE TRANSFORMS PLC
CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 NOVEMBER 2003
(Unaudited) (Unaudited) (Audited)
Six months Six months Year ended
ended ended
30 November 30 November 31 May
2003 2002 2003
Note £ £ £
Net cash outflow from
operating activities 4 (69,050) (585,726) (917,597)
---------- ---------- ----------
Returns on investment and
servicing of finance
Interest received and similar 2,633 3,235 6,677
income ---------- ---------- ----------
Total returns on investments
and
servicing of finance 2,633 3,235 6,677
---------- ---------- ----------
Taxation received 158,850 - -
Capital expenditure
Purchase of tangible fixed (581) (8,204) (9,145)
assets
Receipts from disposal of - - 100
fixed assets ---------- ---------- ----------
Total capital expenditure (581) (8,204) (9,045)
---------- ----------
Cash inflow/(outflow)
before financing 91,852 (590,695) (919,965)
Financing
Issue of ordinary share
capital
(net of issue costs) 49,437 984,978 958,545
---------- ---------- ----------
Total financing 49,437 984,978 958,545
---------- ---------- ----------
Increase in cash in the period 5 141,289 394,283 38,580
/year ========== ========== ==========
SURFACE TRANSFORMS PLC
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.
The comparative figures for the financial year ended 31 May 2003 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 2003, was approved by
the Board on 23rd February 2004.
Restatement of November 2002 figures
During the year ended 31 May 2003, the directors decided, in accordance with FRS
18, 'Accounting policies' to change the format of the profit and loss account to
separately highlight development expenses. The directors believe this provides a
better understanding of the company's activities in the period. Cost of sales,
administrative expenses and development expenses have all been reclassified. The
change in format has resulted in no change to operating loss in any period.
Exceptional item
Following Formula 1 regulatory changes introduced during the year ended 31 May
2003 which restricted the supply of products to that market, the directors
decided to terminate all ongoing Formula 1 development. This resulted in a stock
write down of £293,048 in that year.
2 Taxation
Analysis of credit in the period/year
(Unaudited) (Unaudited) (Audited)
Six months Six months Year ended
ended ended
30 November 30 November 31 May
2003 2002 2003
£ £ £
UK Corporation tax
Current tax on income
for the period - - -
Research and development
tax repayment 119,685 - 158,850
----------- ------------ ----------
119,685 - 158,850
=========== ============ ==========
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% due principally 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 2003
2003 2002
Pence Pence Pence
Loss per ordinary share:
Basic (0.42) (9.46) (10.86)
Diluted (0.42) (9.46) (10.86)
=========== ============ ==========
Loss per ordinary share is based on the Company's loss for the financial period
of £39,424 (30 November 2002: £794,037; 31 May 2003: £964,382).
The weighted average number of shares used in the basic calculation is 9,387,130
(30 November 2002: 8,397,875; 31 May 2003: 8,882,861).
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
would have the effect of reducing the loss per ordinary share and is therefore
not dilutative under the terms of FRS14.
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
2003 2002 2003
£ £ £
Total operating loss (161,742) (797,272) (1,129,909)
Depreciation and
amortisation charges 22,329 15,134 43,846
Profit on sale of fixed assets - - (100)
(Increase)/decrease in stock (9,262) 198,783 268,103
Decrease/(increase) in debtors 42,881 (2,278) (58,703)
Increase/(decrease) in creditors 36,744 (93) (40,834)
------------ ----------- -----------
Net cash outflow
from operating activities (69,050) (585,726) (917,597)
============ =========== ===========
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
2003 2002 2003
£ £ £
Increase in cash in the period/ 141,289 394,283 38,580
year ----------- ------------ -----------
Movement in net funds
resulting from cash flows 141,289 394,283 38,580
Net funds at the start
of the period/year 178,175 139,595 139,595
----------- ------------ -----------
Net funds at the end of the period/ 319,464 533,878 178,175
year =========== ============ ===========
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