Surface Transforms Regulatory News (SCE)

RNS Number : 0484R

Surface Transforms PLC

16 August 2010

 

16 August 2010

 

Surface Transforms plc

 

("Surface Transforms" or the "Company")

 

Final Results and Notice of Annual General Meeting

 

 

Surface Transforms (AIM: SCE) is pleased to announce its final results for the year ended 31 May 2010. The Company's Annual Report and Accounts for the year ended 31 May 2010, together with a notice convening the Company's Annual General Meeting at the Company's offices at Ellesmere Port at 12:00 noon on 28 September 2010 has been posted to shareholders. Copies of the Annual Report and Accounts are available on the Company's website: www.surface-transforms.com. 

 

Highlights

 

·; Revenue increased by 18.5% to £804,800 (2009: £679,284)

·; Losses after taxation reduced to £536,019 (2009: £840,740)

·; Cash position as at 31 May 2010 of £414,513 (2009: £404,275)

·; Order book of £521,996 as at 31 May 2010 (2009: £166,370)

·; Fundraisings of £495,157 net of expenses in July 2009 and December 2009, both at 10 pence per share.

·; Continued development work with a US brake system supplier who has won a development contract to supply prototype vehicles for the next generation of US military transport vehicles. Over £250,000 worth of discs shipped within the financial year.

·; Award in July 2009 of a €245,000, two year development contract with Microturbo, a French company which is one of the world leaders in turbojet engine manufacture.

·; Award in April 2010 of a £2.1 million, three year collaborative research and development grant by the U.K. Technology Strategy Board (TSB). The grant is expected to contribute £470,000 to reduce overheads over the next three year period.

 

Chairman's Statement

 

In the twelve month period to 31 May 2010, the Company achieved increased revenues of £804,800 (2009: £679,284) and sharply reduced losses after taxation of £536,019 (2009: £840,740). This was a satisfactory achievement against the background of a severe global recession and a considerable reduction in activity within the automotive sector during most of 2009.

 

The Company is focused on winning new business in the aerospace and defence industries whilst it maintains its current lower automotive and racing brake sales until there is a recovery in this industry sector.

 

Highlights for the 12 month period were:

 

·; Continued development work with a US brake system supplier who has won a military development contract to supply prototype vehicles for the next generation of US military transport vehicles. Orders to date for this development project have been substantial. Over £250,000 of these orders have been shipped within the 12 month period. The award of this development contract has reduced the impact of the downturn in the automotive commercial and racing automotive brake markets. We do not expect to hear the results of the US military development work until late in 2011 and if successful, increased production volumes will be needed for supply in 2013.

·; Award in July 2009 of a €245,000, two year development contract with Microturbo, a French company which is a world leader in turbojet engine manufacture.

·; Award in April 2010 of a £2.1 million, three year collaborative R&D grant by the U.K. Technology Strategy Board (TSB). The grant is expected to reduce overheads by £470,000 over the next three year period.

·; Fundraising of £495,157 net of expenses from certain existing shareholders, Directors and management in July 2009 and in December 2009, both at 10 pence per share.

 

 

FINANCIAL REVIEW

In the twelve month period to 31 May 2010, revenues were £804,800 (2009: £679,284). Revenues were higher than last year as a result of new business from the US military vehicle development project which more than compensated for the reduction in business from the commercial and racing automotive sectors caused by the global recession.

 

At 31 May 2010, the order book, representing confirmed orders, was £521,996 all for delivery in the financial year ending 31 May 2011.

 

Losses after taxation for the twelve month period were £536,019 (2009: £840,740). These include a non cash charge of £93,472 (2009: £94,424) relating to share based payments under IFRS 2.

 

Net cash outflow in operating activities was £438,765 (2009: £674,724)

 

Earnings per share were a loss of 2.33 pence (2009: loss 4.42 pence)

 

Capital expenditure was £44,365 (2009: £71,430)

 

The Company had a cash balance of £414,513 (2009: £404,275)

 

Shareholders funds were £1,079,133 (2009: £1,026,523)

 

DEVELOPMENTS

The Company considers it offers a single product, namely carbon fibre material, which is machined into differing shapes depending on the intended purpose of the end user. The Company now has a number of globally based customers operating in each of its main end user markets: Aerospace and Defence and the High Performance and Race Automotive Race markets.

 

We believe the Company has now reached a sufficiently advanced stage of maturity in both its process and product developments for each of these end user markets. The Company's production processes can now deliver reliable and repeatable quality of products and this is most apparent in the CViST, (carbon vapour infiltration), and MiST (silicone melt infiltration), phases of production.

 

Looking forward the Company's medium term business model will be to first provide access to clients needing carbon ceramic technology by developing and then supplying application specific products on a small scale. Once the client is established and as product demand increases, Surface Transforms may also project manage the building of client owned process facilities close to the client's site resulting in revenues arising mainly from royalty income on each product sold and from the one off income arising from the construction of the client owned factory.

 

DIRECTORS AND STAFF

Richard Gledhill joined the board during October 2009. Richard has been a shareholder in the Company for the last two years and one of his private companies has been a supplier on a small scale to the business by providing machining and carbon graphitisation development services.

 

The Company has a strong senior management team whose commitment to the business has enabled the business to weather the financial and economic storms of the past two years. I would like to thank all my colleagues, management and staff alike for their dedication and hard work over the past year.

 

OUTLOOK

This year we expect to increase revenues from new business wins in our main markets. This should lead to increased sales and a further reduction in the Company's operating losses and cash usage.

 

We are beginning to see increased orders from the automotive brake market, especially in the European and US automotive aftermarkets and our European aftermarket distribution partner has obtained German regulatory approvals for the use of our ceramic brake disc on a number of leading high value German cars.

 

The current aircraft brake development programme for a military aircraft has progressed and we have signed a formal agreement with a US client which, if and when development is concluded successfully, should provide good prospects for the Company.

 

The challenges now facing management have begun to move from technology based issues to operating matters relating to the management of product supply and working capital to cope with the expected growth of the business.

 

Kevin D'Silva

Chairman

 

16 August 2010

 

 

Chief Executive's Report

 

Automotive - High performance and race car brake systems

The impact of the economic downturn within the automotive market has continued throughout this financial year. The Company's main long term supply contracts for carbon ceramic products continue to perform well below initial expectations, with small signs of a slow recovery in the last quarter of the financial year. In contrast the Company's sales to Koenigsegg, a prestigious supercar manufacturer in Sweden, have remained strong, with consistent demand and a strong order book. 

 

In addition to these existing contracts the Company has successfully won new business during the year. This has included delivering over £250,000 of sales for a US brake system supplier which has won the contract to supply the first prototype brake systems for the next generation of US military transport vehicle as well as new revenues generated from the North American performance brakes aftermarket. As a proportion of the Company's overall sales the automotive brake market now accounts for more than 50% of Surface Transforms' revenues. 

 

Aerospace and defence brake discs and components

The Company continues to work on development programmes with two aircraft brake system suppliers and three rocket component customers.

 

The first aircraft programme is with Meggitt Aircraft Braking Systems (MABS) which has been and remains a key partner of the £1.34 million, three year collaborative R&D project funded by the UK Technology Strategy Board (formerly the DTI). This project is being led by Surface Transforms.

 

The second aircraft development programme is with a US brake system supplier that supplies both commercial and military aircraft principally in US markets. The strategic goals of Surface Transforms and its partner are closely aligned providing a strong foundation for the development of a carbon ceramic brake for aircraft.

 

It is always very difficult to predict the adoption of new technologies and the aerospace market is no different. The Company expects the recently signed development programme with the US supplier to continue to progress, with the focus on the development and commercialisation of the Company's proprietary carbon ceramic technology.

 

Surface Transforms carbon ceramic technology is uniquely positioned to deliver affordable, high performance (in terms of extended life and reduced mass) rocket components.

 

During the last 12 months the Company has made good progress with its rocket development programmes. In particular the Company has completed the first year of a two year development programme worth up to €245,000 with Microturbo (one of the world leaders in gas turbine applications for missile propulsion, drones and UAV's, in addition to civil air and ground-based power units).

 

We have successfully completed year two of a three year development programme with MBDA, a world leading missile manufacturer jointly owned by BAe Systems, EADS and Finmeccanica. 

 

This £150,000 contract over a three year period has already generated some good results which have lead to the Company being awarded the third year of the contract with MBDA. We continue to work closely with MBDA towards a successful conclusion of this contract.

 

The Company has completed year two of a three year development contract for £75,000 with the UK MoD (Ministry of Defence). The programme, although small, is strategically important to the MoD with Surface Transforms technology offering the potential of affordable, yet high performing ceramic composite components for the future.

 

Operations

Affordability is a key requirement for all of our chosen markets, particularly with the current economic pressures the world is facing. The Company has worked hard to improve its process efficiencies. In particular we have made good progress in the Company's proprietary MiST and CViST processes.

 

As the Company develops it will commission additional production capacity. This task coupled with further process and product improvements are the primary operating goals for the Company during the next 12 months.

 

People

The Company continues to have a strong and focused senior management team who have shown tremendous commitment and maturity during the last 12 months.

 

I would like to thank all my colleagues for their dedication over the past year.

 

Kevin Johnson

Chief Executive

 

16 August 2010

 

 

Statement of Total Comprehensive Income

for the year ended 31 May 2010

				2010	2009
				£	£
Revenue				804,800	679,284
Cost of sales				(358,537)	(282,487)
Gross profit				446,263	396,797
Administrative expenses:
Before research costs				(698,791)	(733,700)
Research costs				(670,201)	(839,509)
Total administrative expenses				(1,368,992)	(1,573,209)
Other operating income				177,589	166,035
Operating loss				(745,140)	(1,010,377)
Financial income				339	20,646
Financial expenses				(2,289)	(1,854)
Loss before tax				(747,090)	(991,585)
Taxation				211,071	150,845
Loss for the year after tax				(536,019)	(840,740)
Other comprehensive income				-	-
Total comprehensive income for the year				(536,019)	(840,740)
Loss per ordinary share
Basic and diluted				(2.33p)	(4.42p)

 

All amounts relate to continuing activities.

 

Statement of Changes in Equity

		Share Capital	Share premium account	Capital reserve	Retained earnings	Total
For the year to 31 May 2010
		£	£	£	£	£
Balance at 31 May 2009		190,308	5,749,952	463,885	(5,377,622)	1,026,523
Loss for the year		-	-	-	(536,019)	(536,019)
Total comprehensive income for the year		190,308	5,749,952	463,885	(5,913,641)	490,504
Transactions with owners, recorded directly to equity
Shares issued in the year		53,166	441,991	-	-	495,157
Equity settled share based payments		-	-	-	93,472	93,472
Total contributions by and distributions to the owners		53,166	441,991	-	93,472	588,629
Balance at 31 May 2010		243,474	6,191,943	463,885	(5,820,169)	1,079,133
		Share Capital	Share premium account	Capital reserve	Retained earnings	Total
For the year to 31 May 2009
		£	£	£	£	£
Balance at 31 May 2008		190,308	5,749,952	463,885	(4,631,306)	1,772,839
Loss for the year		-	-	-	(840,740)	(840,740)
Total comprehensive income for the year		190,308	5,749,952	463,885	(5,472,046)	932,099
Transactions with owners, recorded directly to equity
Equity settled share based payments		-	-	-	94,424	94,424
Total contributions by and distributions to the owners		-	-	-	94,424	94,424
Balance at 31 May 2009		190,308	5,749,952	463,885	(5,377,622)	1,026,523

 

Balance Sheet

at 31 May 2010

		2010		2009
		£	£	£	£
Non-current assets
Property, plant and equipment			355,909		382,448
Current assets
Inventories		203,041		228,251
Trade and other receivables		450,416		212,851
Cash and cash equivalents		414,513		404,275
			1,067,970		845,377
Total Assets			1,423,879		1,227,825
Current Liabilities
Other interest bearing loans and borrowings		(20,614)		(14,438)
Trade and other payables		(313,902)		(168,669)
		(334,516)		(183,107)
Non Current Liabilities
Other interest bearing loans and borrowings		(10,230)		(18,195)
Total Liabilities			(344,746)		(201,302)
Net assets			1,079,133		1,026,523
Equity
Share capital			243,474		190,308
Share premium			6,191,943		5,749,952
Capital reserve			463,885		463,885
Retained earnings			(5,820,169)		(5,377,622)
Total equity attributable to equity shareholders of the Company			1,079,133		1,026,523

 

Cash flow statement

for the year ended 31 May 2010

		2010		2009
		£		£
Cash flows from operating activities
Loss for the year		(536,019)		(840,740)
Adjusted for:
Depreciation charge		70,904		71,282
Profit on disposal of plant and equipment		-		(4,402)
Equity settled share-based payment expenses		93,472		94,424
Financial income		(339)		(20,646)
Financial expense		2,289		1,854
Taxation		(211,071)		(150,845)
		(580,764)		(849,073)
Changes in working capital
Decrease in inventories		25,210		30,623
(Increase)/decrease in trade and other receivables		(237,565)		80,072
Increase/(decrease) in trade and other payables		145,233		(105,983)
		(647,886)		(844,361)
Finance income received		339		20,646
Financial expense paid		(2,289)		(1,854)
Taxation received		211,071		150,845
Net cash used in operating activities		(438,765)		(674,724)
Cash flows from investing activities
Acquisition of property, plant and equipment		(44,365)		(22,150)
Proceeds from sale of property, plant and equipment		-		5,075
Net cash used in investing activities		(44,365)		(17,075)
Cash flows from financing activities
Proceeds from issue of share capital		495,157		-
Proceed from new finance lease		13,123		-
Payment of finance lease liabilities		(14,912)		(16,645)
Net cash from financing activities		493,368		(16,645)
Net increase/(decrease) in cash and cash equivalents		10,238		(708,444)
Cash and cash equivalents at the beginning of the period		404,275		1,112,719
Cash and cash equivalents at the end of the period		414,513		404,275

 

NOTES TO THE ACCOUNTS

 

 

1. Basis of preparation

 

The financial information set out above for the years ended 31 May 2010 and 2009 does not constitute the Group's statutory accounts within the meaning of Section 434 of the Companies Act 2006 but is derived from those accounts. Statutory accounts for the year ended 31 May 2009 have been delivered to the Registrar of Companies and those for 2010 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts. The auditors' reports were unqualified and did not contain statements under s.498 (2) or (3) Companies Act 2006. The results have been prepared using accounting policies consistent with those used in the preparation of the statutory accounts.

 

 

Enquiries:

Surface Transforms Plc Kevin Johnson +44 151 356 2141

Geoff Hall

 

Seymour Pierce Ltd

Nandita Sahgal +44 207 107 8000 David Foreman

 

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