Surface Transforms Regulatory News (SCE)

17 Aug 2006 07:00

Embargoed for release at 7.00 am on 17 August 2006 Surface Transforms plc ("the Company") Preliminary results for the year ended 31 May 2006 Surface Transforms plc, manufacturers of carbon fibre reinforced ceramic (CFRC)materials, announces its preliminary results for the year ended 31 May 2006.Highlights: * Turnover ‚£155,177 (2005: ‚£258,336) and loss after tax of ‚£811,870 (2005: ‚£ 616,623). Increase in losses largely due to the loss of development contract in year ended 31 May 2005 * Turnover in the second half of the year is ahead of that achieved in the first six months * Cash at 31 May 2006 approximately ‚£1.75 million, equivalent to 12.4 pence per share * Outstanding order bank at the year end of ‚£147,400 * Intellectual Property Portfolio enhanced through 3 new patent applications * Initial sales of ceramic brakes made under a 12 month contract with Koenigsegg Automotive * Additionally working with three, small UK based automotive OEMs who build high performance cars and Weber Sportcars in Switzerland. Considerable interest in the System ST brake system being shown * Management team strengthened during the year and further non-executives to be appointed to assist in targeting the range of activities undertaken by the Company For enquiries, please contact:Surface Transforms plc John East & Partners Limited Kevin Johnson 0151 472 3733 Simon Clements 0207 628 2200 Julio Faria 0151 472 3733 Johnny Townsend 0207 628 2200 Kevin D'Silva 07802 306956 Teather & Greenwood Limited Mark Dickenson 0207 426 9000 Sindre Ottesen 0207 426 9000Chairman's StatementIn the year under review, Dr Kevin Johnson, Managing Director, and his newmanagement team have progressed plans within the Company's operations and mystatement is designed to bring shareholders up to date with progress in theyear to 31 May 2006 and since the year end. The principal areas the Board hasand continues to focus on are: * strengthening the Intellectual Property portfolio; * the Company's next generation production process for carbon ceramic brake discs; * development of a carbon ceramic disc brake for commercial aircraft; and * commercialisation of the Company's SystemST carbon ceramic brake systems for high performance cars. Financial ReviewIn the year to 31 May 2006, turnover was ‚£155,177 (2005: ‚£258,336). Despite thefall in turnover for the full year compared with the prior year the salesperformance in the second half of the year was better than that achieved in thefirst six months of the year. The outstanding order bank at the year end was ‚£147,400.Revenues in this period include development fees from a US aircraft brakesystem supplier, sales of ceramic rocket components to Roxel and initial salesof ceramic brake discs to Koenigsegg Automotive, the Company's firstsignificant automotive client, and to prospective clients who are testingautomotive brake discs.Losses after tax in the period were ‚£811,870 (2005: ‚£616,623). The increase inlosses relates almost entirely to the first half of the year, where thecorresponding period in 2004/05 included development income from a contractwhich was terminated later that year. Furthermore, the losses also reflect theBoard's decision to strengthen the management team and invest in the Company'sproprietary technology.Shareholders funds as at 31 May 2006 were ‚£1,997,105 (2005: ‚£2,808,975) whichincluded cash deposits of ‚£1,743,389 (2005: ‚£2,728,052). At the year end cashrepresented 12.4 pence per share.Capital expenditure in the year amounted to ‚£129,690 (2005: ‚£63,775).Operating ActivitiesSCIENCE & TECHNOLOGYDuring the period the Company made three new patent applications which, onceapproved, are expected to supplement the existing patent portfolio.The Company is making good progress with the new ST Tech 2 production systemwhich is designed to improve productivity and reduce the costs of manufacturingautomotive carbon ceramic brake discs.Capital expenditure in the current year is expected to be mainly within theCVIST and MIST sub-processes. The majority of the CVIST expenditure planned forthe current year falls within the criteria of the ‚£200,000 grant awarded by theNorthwest Development Agency.The Board have decided to temporarily delay expenditure on the MIST processuntil the Company receives confirmation of a second automotive contractalongside the Koenigsegg agreement. We have conducted preliminary work on theMIST process and at present we are confident that the technology delivers theproductivity and cost savings targeted. The new production system is expectedto generate a 50 per cent. reduction in the unit cost of disc brakes comparedwith those currently being produced.AIRCRAFT BRAKE SYSTEMSThe Company is currently engaged in brake development programmes with threeglobal aircraft brake suppliers. These development programmes derive low levelsof revenue but they are expected to continue for at least the next twelvemonths. It is difficult to forecast the timing of the eventual acceptance ofthe first ceramic brake disc for aircraft use, although two of our clients arevery keen to continue to evaluate the suitability of our technology as areplacement for the current carbon carbon brakes that are used on mostcommercial aircraft.The development contracts are profitable and the Board's view is that it shouldmaintain its position in this market and continue to target increased revenuesfrom aircraft brake development programmes.AUTOMOTIVE BRAKING SYSTEMSIn March this year Koenigsegg Automotive of Sweden agreed a supply contract forcarbon ceramic brakes for 24 car systems with a value of up to ‚£145,000 overtwelve months. The carbon ceramic brakes are being sold as a factory fittedoption on the new Koenigsegg CCX, a 860 bhp supercar that was launched thisyear.The Company continues to work with three, small UK based automotive OEMs whobuild high performance cars and it is also working with Weber Sportcars inSwitzerland. It is never easy to predict customer uptake on the introduction ofa new, high technology product but there is little doubt that there isconsiderable interest in the System ST brake system.PeopleOur success depends on fostering a strong entrepreneurial culture within whichour young management team can develop professionally. We have been active inincentivising our staff with share options to ensure their rewards are the sameas other shareholders and that the business is managed with an `owner's eye'.Share options, although granted this year, have been priced at levels higherthan the current share prices and we have selected our share price as a keyperformance indicator for remuneration. I would like to thank all my colleaguesfor their hard work and dedication over the past year.OutlookWe have two main challenges ahead of us in the coming year.The first is that we have to gain at least one other significant automotivebrake contract and once this has been achieved it will provide clear evidenceof customer acceptance of the Company's brake disc technology for highperformance cars. In the aircraft brake market our technology is actively beingevaluated by several system suppliers but it will take time before our productis accepted for use on a commercial aircraft.The second challenge is the completion of our ST Tech 2 production process sothat it delivers products at greater efficiency and at lower cost than thecurrent process. The Company is relocating to new facilities approximately 10miles from the current site and the move should be completed by the end of theyear.The Board currently has two non-executive directors including Professor DavidClark who is a founder and has been a director since the Company'sincorporation. To support the current range of activities undertaken by theCompany and to assist it in targeting its automotive and aerospace markets moreeffectively, it is the Board's intention to appoint additional non-executivedirectors and we hope to make such announcements in the current year.Kevin D'SilvaChairman17 August 2006SURFACE TRANSFORMS PLCPROFIT AND LOSS ACCOUNTFOR THE YEAR ENDED 31 MAY 2006 Note 2006 2005 ‚£ ‚£ Turnover 155,177 258,336 Cost of sales (101,706) (93,846) Gross profit 53,471 164,490 Distribution costs (1,613) (1,348) Administrative expenses: Before development costs (511,186) (500,574) Development costs (583,936) (472,978) Total administrative expenses (1,095,122) (973,552) Other operating income 27,155 4,980 Operating loss (1,016,109) (805,430) Interest receivable 92,662 131,480 Interest payable - (1,235) Loss on ordinary activities before taxation (923,447) (675,185) Tax on loss on ordinary activities 111,577 58,562 Loss on ordinary activities after taxation (811,870) (616,623)and retained for the financial year Loss per ordinary share Basic and diluted 3 (5.79p) (4.47p) All amounts relate to continuing activities.SURFACE TRANSFORMS PLCBALANCE SHEETAS AT 31 MAY 2006 2006 2005 ‚£ ‚£ ‚£ ‚£ Fixed assets Intangible assets 4,104 6,322 Tangible assets 170,156 73,877 174,260 80,199 Current assets Stocks 124,335 67,522 Debtors 84,135 80,991 Cash at bank and in hand 1,743,389 2,728,052 1,951,859 2,876,565 Creditors: amounts falling due within one year (129,014) (147,789) Net current assets 1,822,845 2,728,776 Net assets 1,997,105 2,808,975 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 (3,509,803) (2,697,933) Shareholders' funds 1,997,105 2,808,975 SURFACE TRANSFORMS PLCCASH FLOW STATEMENTFOR THE YEAR ENDED 31 MAY 2006 2006 2005 ‚£ ‚£ Reconciliation of operating loss to net cash flow from operating activities Operating loss (1,016,109) (805,430) Depreciation charge 33,411 45,935 Amortisation charge 2,218 2,218 (Increase)/decrease in stocks (56,813) 21,161 (Increase)/decrease in debtors (14,471) 103,847 (Decrease)/increase in creditors (18,775) 50,714 Net cash outflow from operating (1,070,539) (581,555)activities 2006 2005 ‚£ ‚£ Cash flow statement Cash flow from operating activities (1,070,539) (581,555) Return on investments and servicing of 103,989 118,918finance Taxation 111,577 58,562 Capital expenditure (129,690) (63,775) Cash outflow before management of (984,663) (467,850)liquid resources and financing Management of liquid resources 987,500 3,000 Financing - 488,063 Increase in cash in the year 2,837 23,213 2006 2005 ‚£ ‚£ Reconciliation of net cash flow to movement in net funds Increase in cash in the year 2,837 23,213 Cash outflow from liquid resources (987,500) (3,000) Movement in net funds in the year (984,663) 20,213 Net funds at the start of the year 2,728,052 2,707,839 Net funds at the end of the year 1,743,389 2,728,052 SURFACE TRANSFORMS PLCSTATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESFOR THE YEAR ENDED 31 MAY 2006 2006 2005 ‚£ ‚£ Loss for the financial year (811,870) (616,623) Unrealised gain on the lapse of warrants - 56,514 Total recognised gains and losses relating to the (811,870) (560,109)financial year RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDSFOR THE YEAR ENDED 31 MAY 2006 2006 2005 ‚£ ‚£ Loss for the financial year (811,870) (616,623) New share capital subscribed (net of issue costs) - 155,563 Net reduction in shareholders' funds (811,870) (461,060) Opening shareholders' funds 2,808,975 3,270,035 Closing shareholders' funds 1,997,105 2,808,975 SURFACE TRANSFORMS PLCNOTES1. Nature of Financial InformationThe financial information set out above does not constitute the Company'sstatutory accounts for the years ended 31 May 2006 or 2005. The financialinformation for 2005 is derived from the statutory accounts for 2005 which havebeen delivered to the registrar of companies. The auditors have reported on the2005 accounts: their report was unqualified and did not contain statementsunder section 237(2) or (3) of the Companies Act 1985. The statutory accountsfor 2006 will be finalised on the basis of the financial information presentedby the directors in this preliminary announcement and will be delivered to theregistrar of companies following the Company's annual general meeting.2. Basis of preparationThe accounting policies have been applied consistently in dealing with itemswhich are considered material in relation to the company's financialstatements. The financial statements have been prepared in accordance withapplicable accounting standards and in accordance with the historical costaccounting rules.3. Loss per share The calculation of basic loss per ordinary share is based on the loss for thefinancial year divided by the weighted average number of shares in issue duringthe year.Losses and number of shares used in the calculations of loss per ordinary shareare set out below:Basic 2006 2005 ‚£ ‚£ Loss after tax (811,870) (616,623) Weighted average number of shares 14,030,748 13,805,406 Loss per share (5.79p) (4.47p)The calculation of diluted loss per ordinary share is identical to that usedfor the basic loss per ordinary share. This is because the exercise of optionswould have the effect of reducing the loss per ordinary share and is thereforenot dilutive under the terms of Financial Reporting Standard 14.4. DividendsNo dividends were paid or are proposed in respect of the year ended 31 May2006.5. Report and Financial StatementsCopies of the Report and Financial Statements will be posted to shareholdersshortly and will be available from the Company's registered office at CheshireInnovation Park, Unit 306, Pool Lane, Ince, Cheshire CH2 4NU.ENDSURFACE TRANSFORMS PLC