Interim Results
Surface Transforms PLC
23 February 2005
23 February 2005
Interim results for the six months ended 30 November 2004
Surface Transforms plc, manufacturers of carbon fibre reinforced ceramic (CFRC)
materials, announces its interim results for the six months ended 30 November
2004.
Financial and business highlights:
• Turnover increased to £208,422 (30 November 2003: £175,481)
• Increased investment in CFRC technology, management and technical
infrastructure of the Company contributed to increased operating losses of
£301,147(30 November 2003: £161,742)
• New development agreement signed with leading US-based aircraft brake
systems supplier
• Strengthened management team
• Strong cash position, £3,035,932 at 30 November 2004
Kevin D'Silva, Chairman of Surface Transforms, comments:
'The strategy to develop a Company with world class technical, product and
business development capabilities remains unchanged despite the short term
revenue loss associated with the wide-bodied aircraft brake contract.
'Revenues are expected to reduce in the second half of the financial year ending
May 2005, reflecting the loss of income from the Dunlop partnership. However,
the Company is developing new business revenue streams in the automotive and
aircraft brake markets, and is maintaining its increased investment in operating
and development activities.'
For enquiries, please contact:
Surface Transforms plc Gresham PR Ltd.
Julio Faria 01928 735 498 Neil Boom 020 7404 9000
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
Chairman's Statement
The Company has made further progress in its principal markets since I last
reported financial results to shareholders. This includes starting development
work with a second global aircraft brake partner.
In January we announced the disappointing news that the materials we have been
jointly developing with Dunlop Aerospace for a new wide-bodied commercial
airliner would not be available in time for 2006. Despite this short-term
setback, the prospects in the automotive brakes market and in our other aircraft
brake partnership have enabled us to maintain the positive momentum developed in
2003/4.
Following the share placing that raised £2.7 million, the Company has increased
research and development expenditure relating to its proprietary new generation
carbon fibre ceramics, and appointed experienced executives and technical
personnel across the management and staff teams.
Financial Review
Turnover for the six-months ending 30 November, 2004 increased to £208,422 (
2003: £175,481), while operating losses on ordinary activities were higher at
£301,147 (2003: £161,742).
The increased operating losses were largely due to a substantial increase in
development costs relating to the board's decision to accelerate investment in
carbon fibre reinforced ceramic technology, in the management team and in
technical personnel.
Losses after tax were higher at £180,277 (2003: £39,424) reflecting lower
research and development tax credits and grants of £58,562 (2003: £119,685).
The Company's cash and working capital position remains healthy demonstrating
the strong financial disciplines of the business despite continued investment in
the development of the CFRC technology. At 30 November 2004, the Company held
cash and deposits of £3,035,932 (May 2004: £2,707,839) representing in excess of
21 pence per share. Surface Transforms continues to have no bank borrowings.
The strong cash position will allow the board to continue its strategy of
developing and commercialising its technology across its chosen market
applications, notably automotive and aircraft brakes and aerospace components.
Management
As previously announced Dr Kevin Johnson, Operations Director, and Antoni
Sznerch, Business Development Director, have joined Julio Faria, Dr Geoff Gould
and Johannah Stretton as executive officers. To meet the challenging targets in
aircraft and automotive brake business development, together with goals in
operations and technology, non-executive director Peter Holland has agreed to
co-ordinate management activities for a six-month period to June 2005. Peter has
a 25-year record of successful management in an industrial chemical company,
which he sold in 2002.
Science and Technology Group
The Company has re-organised internally, to form a new Science and Technology
Group, headed by Julio Faria. This group will focus on maintaining the Company's
lead in CFRC technology and continues to draw on the scientific expertise of n
on-executive director, Professor David Clark. In September 2004, the board
initiated investment in a next generation CFRC siliconisation plant to replace
the Company's existing process technology. The new plant is expected to be
commissioned at the end of 2005 and it should substantially improve the
operating characteristics of the CFRC technology.
Operating Activities
Automotive Brake Systems
Surface Transforms has invested heavily in the past six months in the automotive
brake market, specifically the high-performance road car segment. The
co-operation agreement with METEK was signed in May 2004 and orders were taken
for the 'System ST' brake & pad, which was successfully launched in November
2004 at a major automotive aftermarket trade show in Essen.
A number of European car manufacturers who produce high-performance, low volume
cars, have shown interest in evaluating 'System ST'. Shareholders will be
updated once material progress has been made.
The High Performance Road Car market offers significant commercial opportunities
for carbon ceramic brakes and the Company's strategy for European market entry
has recently been revised. It involves using System ST products for:
•entry into the automotive aftermarket for brake system upgrades
•entry into the automotive Original Equipment Manufacture (OEM) market for
high volume, peformance car models
•entry into the automotive OEM market for low volume, performance car
models
The high volume OEM market is substantial and the time for material evaluation
and qualification for a new brake is necessarily long. The Company is
cooperating with METEK in this field.
The low volume OEM market is attractive as there are a number of car producers
considering carbon ceramic brakes to improve the braking power, performance and
attraction of their cars.
The performance car aftermarket
The automotive aftermarket for brake discs is large and there is increasing
interest in carbon ceramic brakes. Surface Transforms is seeking opportunities
to supply the performance car aftermarket within Europe and will inform
shareholders of developments at the appropriate time.
Aircraft Brakes
The Company has separate development programmes for carbon ceramic aircraft
brake discs with two global suppliers of aircraft braking systems. Dunlop
Aerospace is the European supplier and development work commenced some three
years ago, accelerating when a Master Licence agreement was signed in November
2003. As already stated, the Company's CFRC brake materials will not be included
on a new, wide-bodied European aircraft being certified for flight in 2006. The
performance evaluation period required to fully evaluate, qualify and
manufacture brake discs for this aircraft model exceeded the aircraft's launch
timetable.
This will reduce expected 2005 revenues by approximately £150,000 and will
cancel projected licence income scheduled to start in 2008. The Company
continues to work with Dunlop under the Master Licence Agreement.
In January 2005, Surface Transforms signed a materials development programme
with a leading US-based aircraft brake systems supplier. The programme is at an
early stage and the risks that relate to a high-performance technology project
are always an important consideration. Nevertheless, the goals of both parties
are to qualify carbon ceramic brake discs for use on selected, new and existing
aircraft models.
Aerospace Components and Anti Ballistic Materials
Roxel UK and Roxel France are the principal customers for Surface Transforms'
non-friction materials for use in rocket motors. Co-operation between the two
companies continues to expand.
The 12-month development contract with the US Airforce Research Laboratory
(AFRL) was completed during the period under review. The feedback from AFRL is
that material testing has been very successful. The Company has submitted
proposals for a substantial expansion to the development programme but award is
subject to the AFRL's budget constraints.
The contract with the UK Ministry of Defence to develop and evaluate anti
ballistic materials continues to progress and results should be available in the
next six months.
Outlook
The strategy to develop a company with world class technical, product and
business development capabilities remains unchanged despite the short term
revenue loss associated with the wide-bodied aircraft brake contract.
Revenues are expected to reduce in the second half of the financial year ending
May 2005, reflecting the loss of income from the Dunlop partnership. However,
the Company is developing new business revenue streams in the automotive and
aircraft brake markets, and is maintaining its increased investment in operating
and development activities.
The new business contract awarded to the Company during the period
under review reflects the hard work and dedication of all employees. I would
like to express my thanks to them and again extend a warm welcome to those new
colleagues who have joined us recently.
Kevin D'Silva
Chairman
22 February 2005
SURFACE TRANSFORMS PLC
PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED 30 NOVEMBER 2004
(Unaudited) (Unaudited) (Audited)
Six months Six months Year ended
ended ended
Note 30 November 30 November 31 May
2004 2003 2004
£ £ £
Turnover 208,422 175,481 428,608
Cost of sales (60,581) (65,749) (117,461)
--------- ---------- ----------
Gross profit 147,841 109,732 311,147
Distribution costs (751) (693) (1,261)
Administrative expenses: (239,158) (256,289) (473,479)
Before development costs
Development costs (209,079) (44,462) (123,349)
--------- ---------- ----------
Total administrative
expenses (448,237) (300,751) (596,828 )
--------- ---------- ----------
Other operating income - 29,970 29,970
--------- ---------- ----------
Operating loss (301,147) (161,742) (256,972)
Interest receivable 63,528 2,633 7,763
Interest payable (1,220) - -
--------- ---------- ----------
Loss on ordinary activities
before taxation (238,839) (159,109) (249,209)
Taxation on loss on
ordinary activities 2 58,562 119,685 119,685
--------- ---------- ----------
Loss on ordinary activities
after taxation and retained
for the financial period/year (180,277) (39,424) (129,524)
========= ========== ==========
Loss per ordinary share
Basic and diluted 3 (1.33p) (0.42p) (1.36p)
========= ========== ==========
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 2004
(Unaudited) (Unaudited) (Audited)
As at As at As at
30 November 30 November 31 May
2004 2003 2004
£ £ £
Fixed assets
Intangible assets 7,431 9,649 8,540
Tangible assets 64,813 77,254 56,037
----------- ---------- ----------
72,244 86,903 64,577
----------- ---------- ----------
Current assets
Stocks 77,748 79,330 88,683
Debtors 191,838 212,341 506,011
Cash at bank and in hand 3,035,932 319,464 2,707,839
----------- ---------- ----------
3,305,518 611,135 3,302,533
----------- ---------- ----------
Creditors:
Amounts falling due within one year (132,441) (114,352) (97,075)
----------- ---------- ----------
Net current assets 3,173,077 496,783 3,205,458
----------- ---------- ----------
Net assets 3,245,321 583,686 3,207,035
=========== ========== ==========
Capital and reserves
Called up share capital 140,308 94,441 132,158
Share capital to be issued - - 4,750
Share premium account 4,902,715 2,016,570 4,750,552
Other reserves 520,399 520,399 520,399
Profit and loss account (2,318,101) (2,047,724) (2,137,824)
----------- ---------- ----------
Equity shareholders' funds 3,245,321 583,686 3,270,035
=========== ========== ==========
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR THE SIX MONTHS ENDED 30 NOVEMBER 2004
(Unaudited) (Unaudited) (Audited)
Six months Six months Year ended
ended ended
30 November 30 November 31 May
2004 2003 2004
£ £ £
Loss for the period/year (180,277) (39,424) (129,524)
New share capital issued
(net of issue costs) 155,563 49,437 2,825,886
---------- ---------- ----------
Net (reduction in)/addition
to shareholders' funds (24,714) 10,013 2,696,362
Opening shareholders' funds 3,270,035 573,673 573,673
---------- ---------- ----------
Closing shareholders' funds 3,245,321 583,686 3,270,035
========== ========== ==========
SURFACE TRANSFORMS PLC
CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 NOVEMBER 2004
(Unaudited) (Unaudited) (Audited)
Six months Six months Year ended
ended ended
30 November 30 November 31 May
2004 2003 2004
Note £ £ £
Cash flow from
operating activities 4 (240,482) (69,050) (249,202)
---------- ---------- ----------
Returns on investments and
servicing of finance
Interest received and
similar income 52,778 2,633 7,763
---------- ---------- ----------
Total returns on investments
and servicing of finance 52,778 2,633 7,763
---------- ---------- ----------
Taxation received 58,562 158,850 278,535
Capital expenditure
Purchase of tangible
fixed assets (30,828) (581) (818)
---------- ---------- ----------
Total capital expenditure (30,828) (581) (818)
---------- ---------- ----------
Cash (outflow)/ inflow before
financing and management of
liquid resources (159,970) 91,852 36,278
Management of liquid resources
Cash placed on treasury
deposit (252,247) - (2,635,000)
---------- ---------- ----------
Total management of liquid
resources (252,247) - (2,635,000)
---------- ---------- ----------
Financing
Issue of ordinary share capital 8,150 642 38,359
Premium from issue of ordinary
share capital (net of issue
costs) 327,750 - 2,393,851
Premium on exercise of warrants 152,163 48,795 61,176
---------- ---------- ----------
Total financing 488,063 49,437 2,493,386
---------- ---------- ----------
Increase/(decrease) in cash 5 75,846 141,289 (105,336)
in the period/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 2004 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 2004, was approved by
the Board on 22 February 2005.
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
2004 2003 2004
£ £ £
UK Corporation tax
Current tax on income
for the period - - -
Research and development
tax repayment 58,562 119,685 119,685
----------- ------------ ----------
58,562 119,685 119,685
=========== ============ ==========
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 Six months Year ended
ended ended
30 November 30 November 31 May 2004
2004 2003
Pence Pence Pence
Loss per ordinary share:
Basic (1.33) (0.42) (1.36)
Diluted (1.33) (0.42) (1.36)
=========== ============ ==========
Loss per ordinary share is based on the Company's loss for the financial period
of £180,277 (30 November 2003: £39,424; 31 May 2004: £129,524).
The weighted average number of shares used in the basic calculation is
13,581,249 (30 November 2003: 9,387,130; 31 May 2004: 9,506,297).
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
2004 2003 2004
£ £ £
Total operating loss (301,147) (161,742) (256,972)
Depreciation and
amortisation charges 23,161 22,329 44,892
Decrease/(increase) in
stock 10,935 (9,262) (18,615)
(Increase)/decrease in
debtors (7,577) 42,881 (37,974)
Increase in creditors 34,146 36,744 19,467
------------ ----------- -----------
Net cash outflow
from operating activities (240,482) (69,050) (249,202)
============ =========== ===========
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
2004 2003 2004
£ £ £
Increase/(decrease) in cash in
the period/year 75,846 141,289 (105,336)
Increase in liquid
resources 252,247 - 2,635,000
----------- ------------ -----------
Movement in net funds
in the period/year 328,093 141,289 2,529,664
Net funds at the start
of the period/year 2,707,839 178,175 178,175
----------- ------------ -----------
Net funds at the end of the
period/year 3,035,932 319,464 2,707,839
=========== ============ ===========
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