Final Results

To be embargoed until 7.00am 31 July 2007 Surface Transforms Plc ("Surface Transforms" or "the Company") Final Results for the twelvemonths ended 31 May 2007 * Turnover of £266,789 (2006: £155,177) * Losses after taxation £646,422 (2006: £870,599 restated on adoption of FRS20 "Share Based Payments") * Cash position of £878,971 (2006: £1,743,389) * Order bank of £126,097 (31 May 2007) * Koenigsegg being supplied at a rate of two car sets per month * Mov` it distribution agreement signed, €31,000 sales in the last three months, with an anticipated value of €150,000 over next two years * Production orders from StopTech Inc, a US brake system supplier with £ 29,390 having been sold in the year ended 31 May 2007 * Continued development with three of the major aircraft brake system suppliers * Awarded Grant towards a £1.34 million Collaborative R&D Project by the UK Department of Trade and Industry of which £28,000 was received in the year ended 31 May 2007 For enquiries, please contact: Surface Transforms plc Tel: 0151 356 2141 Kevin Johnson 07802 306956 Kevin D'Silva John East & Partners Limited (Nomadand Joint Tel: 020 7628 2200 Broker) Simon Clements David Worlidge Teather & Greenwood Ltd (Joint Broker) Tel: 020 7426 9000 Sindre Ottesen Mark Dickenson Redmayne Bentley (Private client broker) Lucy Clapham Simon Flather For further Company details visit, click on Armshare CHAIRMAN'S STATEMENT In the 12 months to 31 May 2007, two principal challenges were addressed by the Company's management and I am pleased to report that significant financial and operational progress has been made in meeting them. The challenges were: * to gain at least one other significant automotive brake contract to operate alongside the supply contract with Koenigsegg Automotive of Sweden; and * to improve the production efficiency of ceramic brake discs and lower their unit cost. The Company starts the 2007/8 financial year with a greater degree of financial security; a record order bank and three automotive clients who are purchasing ceramic brake discs on a regular basis. In summary the key achievements in the period under review were: * two new aftermarket automotive clients: StopTech Inc and Mov` it Gmbh now purchase discs regularly alongside Koenigsegg Automotive; * the factory relocation was completed in April 2007 and as a result operating efficiency has improved; * ceramic brake disc costs are now 25 per cent. below the levels of 2006/7 and further reductions will arise when the proprietary carbon densification process, CVIST, comes on stream, which is expected to be in the third quarter of 2007; * the award by the DTI of a three year £1.34 million Collaborative R&D Project. The award represents a contribution to overheads and an improved cash flow of £140,000 per annum over three years; * a paid development agreement with a European aircraft brake system supplier; and * paid development work from two new rocket component clients (Rolls-Royce PLC and MBDA). FINANCIAL REVIEW In the 12 months to 31 May 2007, turnover was £266,789 (2006: £155,177). This represents a 72 per cent. increase on the same period in 2006. Increased automotive brake disc revenues account for the largest proportion of the increase and now represent over 50 per cent. of the Company's revenues. At 31 May 2007, the outstanding order bank was £126,097. Losses after taxation for the 12 month period were £646,422 (2006: £870,599 restated following adoption of FRS 20 "Share Based Payments"). Shareholder funds at 31 May 2007 were £1,413,058 (2006: £1,997,105) which included cash deposits of £878,971 (2006: £1,743,389). At 31 May 2007 cash represented 6.26 pence per share. Capital expenditure in the year was £193,382. The Company has no borrowings. PRODUCTION & NEW TECHNOLGY PROCESSES Relocation was completed during April 2007 and this has allowed for all of the Company's operations to be in one location. Production efficiencies have begun to be implemented and further improvements are expected to be forthcoming in the first six months of the current financial year. The development of CVIST, the carbon vapour infiltration process plant, is nearing completion. The new plant has been installed and the management team are beginning a three month commissioning phase with completion scheduled during the third quarter of this calendar year. Improved purchasing of materials has already reduced the direct cost of an automotive ceramic brake disc by 25 per cent. compared to 2006/7 and the completion of CVIST is expected to reduce costs further and we are targeting an overall 50 per cent. reduction compared with 2006/7. Capital and project expenditures on CVIST will be in the order of £225,000. Approximately £200,000 of revenue grants will be received from the Northwest Development Agency ("NWDA") in relation to this project, reducing the cash commitment of the Company to £25,000. AUTOMOTIVE BRAKE SYSTEMS The success of the supply contract with Koenigsegg Automotive ("Koenigsegg") has increased interest from a number of automotive companies. Although the Company has not yet been awarded a supply contract from an established luxury car manufacturer, there has been progress in this area. The target market for SystemST ceramic brakes are cars which are typically priced in excess of €90,000 (£60,000) and there are approximately 250,000 cars sold within Europe annually within this market category. The key product features sought by purchasers of ceramic brake discs are: * extended product life and improved lifetime cost; * improve handling and comfort; * improved brake performance; * corrosion resistant; * image; and * lower CO2 emissions. Recent environmental studies on SystemST ceramic brake discs with Koenigsegg have shown lower carbon emissions per kilometre and a material improvement of the carbon footprint in the production and use phases of the lifetime cycle over iron brake discs. SystemST is now repesented on more than 20 car platforms including: Koenigsegg (www.koenigsegg.sw) SystemST systems have been supplied for over 20 cars and the expectation is that annual supplies of ceramic discs levels will continue at this level. StopTech Inc ( This brake system company is the US's leader in balanced brake upgrades for production cars and production based racecars. Production orders have been placed and both Surface Transforms and StopTech expect that initially ceramic brake sets for between 50-100 cars will be required in the aftermarket on an annual basis. Mov` it Gmbh ( After an eight month evaluation period, Mov` it Gmbh and the Company have signed a four year supply and distribution agreement. Mov' it operates throughout Europe and in 2006 installed high performance iron disc based brake systems on over 2,000 cars in the automotive aftermarket. The Company expects that revenues from the Mov` it agreement will be approximately €150,000 (£ 100,000) in the first two years of the contract term. Ascari Cars ( SystemST ventilated ceramic discs have been chosen as standard for the new Ascari A10. This Ascari model has a five litre, 625 bhp, V8 engine and a maximum speed of 215 mph. It's commercialisation has not yet been finalised by Ascari cars of Banbury UK. Weber Sports cars ( Weber launched their new super-car at Top Marques show in Monte Carlo earlier this year sporting SystemST ceramic discs. Their plan is to build approximately 10 cars per annum. Tramontana ( Tramontana, another super-car, built in Spain also carries SystemST brake rotors. Tramontana plan limited production driven by their order book. A number of other automotive OEMs are currently evaluating SystemST and the Company will update investors as news becomes available. AIRCRAFT BRAKE SYSTEMS Revenues from the aircraft brake systems market sector are principally from paid development contracts. In September 2006, a third brake system supplier commenced development work with the Company and this work is focused on designing a new aircraft brake disc with lower wear characteristics. Lower disc wear reduces the brake service costs associated with aircraft operation. Important work with Dunlop Aircraft Braking Systems also continues, now supported financially by a DTI project award. ROCKET COMPONETS The Company's principal client in this sector has been Roxel who purchased ceramic rocket propulsion components for use in testing trials for a new nozzle design. In addition, a one year testing programme for a commercial rocket has just completed and the results have been encouraging. Our ceramic components are required to extend the operating life time and to reduce the mass compared with both current carbon-carbon composites and tungsten alloy materials. In recent months further paid development work has been awarded by new clients: Rolls-Royce plc and MBDA Missile Systems (MBDA (UK) Limited). Rolls-Royce is interested in using affordable ceramic material for unmanned aerial vehicle engines and the Company's material is currently being tested within these engines. MBDA is a Europe-wide group owned by BAe Systems, EADS and Finmeccanica and is the largest missile manufacturer in Europe. Work with MBDA is expected to increase over the next three years as activity is linked to the development of a new control system applicable to a range of European missiles. The work will be supported jointly by the UK and French Ministries of Defence as part of the Innovation and Technology Partnership (ITP) on Materials and Components for Missiles. We are pleased that Surface Transforms has been identified as a provider of enabling technology which uses a thermo-structural material which is also produced at lower cost to existing material. The work will seek to characterise material design properties, identify different manufacturing routes and culminate in the production of test component demonstrators. NEW FUNDING Earlier today, the Company announced that John East & Partners Limited, joint broker to the Company, had placed 5,000,000 new ordinary shares at 20 pence per share to provide additional funding. The new funds will be combined with existing cash resources and will be used (i) to accelerate the adoption of SystemST carbon ceramic discs in the wider automotive brake market; (ii) to reduce the direct cost to manufacture carbon ceramic discs; and (iii) for general working capital purposes. Your board has decided that a placing with institutions rather than an open offer to all shareholders was in the best interests of the Company because it substantially reduced the costs of the fundraising (currently estimated at £ 105,000). PEOPLE This has been a busy year for both management and staff at Surface Transforms and the commercial and technical progress made by the Company has placed demands on individuals especially as progress has had to be executed within the constraints of a factory relocation. Julio Faria, the founder of the Company decided to step down from an executive role in December 2007 but we are happy that he will continue as a non-executive director on the board. Ken Baker joined us in September 2006 as a non-executive director and his counsel and experience has already been invaluable. We have continued to incentivise our management and staff with share options, as we wish to align their rewards with those of shareholders. I would like to thank all my colleagues for their dedication over the past year. OUTLOOK We see further progress in the coming year in both aircraft and automotive brake markets. The board believe that Surface Transforms has become recognised as an industry operator with a world class technology which is being used in commercial applications and from which the Company is generating revenue, albeit on a small scale at present. This is particularly evident in the automotive market. As a result of the progress achieved to date and the further work planned for this financial year, we anticipate developing long term commercial agreements with global industry operators with a view to commercialising the technology on a greater scale. We would remind shareholders that our strategy is for the Company to develop new applications for its technology and, where appropriate, undertake low volume manufacture. For high volume manufacture, the technology will be licensed to third parties. This means that the Company will avoid the costs and time involved in becoming a profitable high volume manufacturer. Against this background and the current level of overheads, the sales level required to achieve breakeven is relatively modest. Kevin D'Silva Chairman 31 July 2007 Profit and Loss Account for the year ended 31 May 2007 Note 2007 Adjusted 2006 £ £ Turnover 266,789 155,177 Cost of sales (138,955) (101,706) Gross profit 127,834 53,471 Distribution costs - (1,613) Administrative expenses: Before development costs (586,643) (543,266) Development costs (560,005) (610,585) Total administrative expenses (1,146,648) (1,153,851) Other operating income 176,530 27,155 Operating loss (842,284) (1,074,838) Interest receivable 59,845 92,662 Loss on ordinary activities before taxation (782,439) (982,176) Tax on loss on ordinary activities 4 136,017 111,577 Loss on ordinary activities after taxation (646,422) (870,599) and retained for the financial year Loss per ordinary share Basic and diluted 5 (4.61p) (6.20p) All amounts relate to continuing activities. Comparative figures restated on the adoption of FRS20 "Share Based Payments". Balance Sheet at 31 May 2007 2007 2006 £ £ £ £ Fixed assets Intangible assets 1,886 4,104 Tangible assets 289,455 170,156 291,341 174,260 Current assets Stocks 212,181 124,335 Debtors 289,576 84,135 Cash at bank and in hand 878,971 1,743,389 1,380,728 1,951,859 Creditors: amounts (259,011) (129,014) falling due within one year Net current assets 1,121,717 1,822,845 Net assets 1,413,058 1,997,105 Capital and reserves Called up share capital 140,308 140,308 Share premium account 4,902,715 4,902,715 Other reserves 463,885 463,885 Profit and loss account (4,093,850) (3,509,803) Shareholders' funds 1,413,058 1,997,105 Comparative figures restated on the adoption of FRS20 "Share Based Payments". Cash Flow Statement For the year ended 31 May 2007 2007 2006 £ £ Reconciliation of operating loss to net cash flow from operating activities Operating loss (842,284) (1,074,838) Depreciation charge 74,083 33,411 Amortisation charge 2,218 2,218 Increase in stocks (87,846) (56,813) Increase in debtors (205,441) (14,471) Increase/(decrease) in creditors 129,997 (18,775) Charge in relation to share based payments 62,375 58,729 Net cash outflow from operating activities (866,898) (1,070,539) 2007 2006 £ £ Cash flow statement Cash flow from operating activities (866,898) (1,070,539) Return on investments and servicing of finance 59,845 103,989 Taxation 136,017 111,577 Capital expenditure (193,382) (129,690) Cash outflow before management of liquid resources and (864,418) (984,663) financing Management of liquid resources 894,500 987,500 Increase in cash in the year 30,082 2,837 2007 Restated 2006 £ £ Reconciliation of net cash flow to movement in net funds Increase in cash in the year 30,082 2,837 Cash outflow from liquid resources (894,500) (987,500) Movement in net funds in the year (864,418) (984,663) Net funds at the start of the year 1,743,389 2,728,052 Net funds at the end of the year 878,971 1,743,389 Statement of total recognised gains and losses for the year ended 31 May 2007 2007 Restated 2006 £ £ Loss for the financial year (646,422) (870,599) Total recognised gains and losses relating to the (646,422) (870,599) financial year Prior year adjustments (as explained in note 2) (58,729) Total gains and losses recognised since last annual (705,151) report Reconciliation of movements in shareholders' funds for the year ended 31 May 2007 2007 Restated 2006 £ £ Loss for the financial year (646,422) (870,599) Change in relation to Share Based Payment 62,375 58,729 Net reduction in shareholders' funds (584,047) (811,870) Opening shareholders' funds 1,997,105 2,808,975 Closing shareholders' funds 1,413,058 1,997,105 Notes - forming part of the financial statements 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 2007 or 2006. The financial information for 2006 is derived from the statutory accounts for 2005 which have been delivered to the registrar of companies. The auditors have reported on the 2006 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 2007 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 following accounting policies have been applied consistently in dealing with items which are considered material in relation to the financial statements, 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 their adoption. The corresponding amounts in these financial statements are restated in accordance with these policies. 3. 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: Year ended 31 May 2006 £ Retained loss as previously reported (811,870) Prior year adjustment in respect of FRS20 (58,729) Retained loss as restated (870,599) The change in accounting policy has resulted in a pre-tax charge of £62,375 for the year ended 31 May 2007. Intangible fixedassets and amortisation Expenditure on patents is capitalised and amortised to nil by equal annual instalments over the useful economic life of seven and a half years. Tangible fixed assets and depreciation Depreciation is provided to write off the cost less the estimated residual value of tangible fixed assets by equal instalments over their estimated useful economic lives as follows: Plant and machinery - 12.5 per cent. - 20 per cent. per annum Fixtures and fittings - 25 per cent. per annum Motor vehicles - 25 per cent. per annum Leasehold improvements - Over life of lease Foreign currencies Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the contracted rate or the rate of exchange ruling at the balance sheet date and the gains or losses on translation are included in the profit and loss account. Leases Operating lease rentals are charged to the profit and loss account on a straight line basis over the period of the lease. 4. Taxation Analysis of credit in year 2007 2006 £ £ UK corporation tax Current tax on income for the year - Research and development tax repayment (136,017) (111,577) Tax on loss on ordinary activities (136,017) (111,577) Factors affecting the tax credit for the current period The current tax credit for the year is lower (2006: lower) than the standard rate of corporation tax in the UK of 30 per cent. The differences are explained below: 2007 2006 £ £ Current tax reconciliation Loss on ordinary activities before tax (782,439) (982,176) Current tax at standard rate of 30 per cent. (234,732) (294,653) Effects of: Expenses not deductible for tax purposes 3,118 18,334 Depreciation for period (less than)/in excess of capital (39,653) 10,461 allowances Short-term timing differences (1,649) 2,905 Tax losses incurred in the period 272,916 262,953 Research and development tax repayment (136,017) (111,577) Total current tax credit (see above) (136,017) (111,577) Factors that may affect future tax charges The effective tax rate in future years is expected to be below the standard rate of corporation tax in the UK due principally to historical losses which have been carried forward. 5. Loss on ordinary shares 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 2007 2006 £ £ Loss after tax (646,422) (870,599) Weighted average number of shares 14,030,748 14,030,748 Loss per share (4.61p) (6.20p) 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 options would have the effect of reducing the loss per ordinary share and is therefore not dilutive under the terms of Financial Reporting Standard 22. Comparative figures restated on the adoption of FRS20 "Share Based Payments" 6. Dividends No dividends were paid or are proposed in respect of the year ended 31 May 2007. 7. Report and Financial Statements Copies of the Report and Financial Statements will be posted to shareholders today and will be available from the Company's registered office at Unit 4, Olympic Park, Pool Hall Road, Ellesmere Port, South Wirral, Merseyside CH66 1ST
UK 100

Latest directors dealings