Last checked at 11 Feb 2009 07:00
11 February 2009 Surface Transforms plc (the "Company") Half-yearly results for the six months ended 30 November 2008
Surface Transforms plc, manufacturers of carbon fibre reinforced ceramic (CFRC) materials, announces its half-yearly financial report for the six months ended 30 November 2008.
Financial and business highlights:
* Turnover £398,409 (30 November 2007: £205,997); * Outstanding Order Bank currently stands at £[324,428]; * Losses after tax £396,718 (30 November 2007: £213,956) * Cash at 30 November 2008 was £724,903 equivalent to approximately 3.8 pence per share (31 May 2008: £1,112,719 equivalent to 5.8 pence per share)
Commenting, Kevin D'Silva, Chairman, said:
"Revenues in the second half of the financial year ending May 2009 are expected to be lower than our internal budgets and, therefore, full year revenues, although higher than the previous year, will be below market expectations. In addition, despite the recent cost reduction measures, the loss for the current year is now expected to be higher than 2007/08 and market expectations.
"The board recognises that trading conditions for the Company's non-aerospace customers will continue to be challenging over the next 18 months. However, our focus will be on achieving new business wins in the aerospace markets, some of which have already occurred in December 2008 with more expected. In addition, some significant operating milestones have been achieved especially in the area of unit cost reduction. Lower unit cost of manufacture, a reduced annual overhead base of £200,000 and improved business in Aerospace are expected, collectively, to deliver a marked reduction in operating losses and improved cash flows in the 2009/10 financial year.
"Whilst forecasting with any degree of accuracy is difficult in the current economic conditions the board remains completely focused on achieving its goals and is cautiously optimistic that the business is capable of breaking even, in cash terms, at an operational level, in the financial year ended 31 May 2010. "
ENQUIRIES:Surface Transforms plc Geoff Hall Tel: 0151 356 2141 Kevin Johnson John East & Partners Limited Simon Clements Tel: 020 7628 2200 Redmayne Bentley (Private Client Broker) Lucy Clapham Tel: 01943 886600 Simon Flather
For further Company details visit www.surface-transforms.com, click on Armshare
CHAIRMAN'S STATEMENT
During the six months ending 30 November 2008, the Company achieved its internal budgeted financial targets. Revenues were £398,409 (2007: £205,997) and losses after tax were £396,718 (2007: £213,956). The higher losses during this period were budgeted and arose due to higher overheads. These were instigated in early 2008 in order to bring forward the achievement of certain operating milestones by the year ended 31 December 2008.
The key achievements for the six month period were:
* In September 2008, the award of a £300,000-£400,000 per annum, multi year contract with Movit GmbH a leading supplier of aftermarket, high performance brakes in Europe. This followed the award of a four year contract of a similar value to supply brake carbon pre-forms to one of Europe's leading automotive brake system suppliers. * In October 2008, the achievement of ISO 9001 qualification - essential for doing business in the aerospace sectors and with some of the larger, prospective automotive OEM clients * In November 2008, the completion of the CVIST manufacturing project for carbon infiltration of brake discs. This has provided the business with the capability of a further 20 per cent. reduction in manufacturing costs of an automotive brake disc. * In early December 2008 the award of a further £100,000 order from MBDA, Europe's leading missile supplier, for the supply of carbon ceramic rocket components. The current market for such components is growing.
There were, however, some disappointments resulting from the sharp decline in global business confidence that commenced in October 2008. These were:
* the trading climate within the high performance automotive brake sector, one of the three end user markets we serve, has deteriorated significantly; and * we currently expect that revenues from two of our three main automotive clients will not meet contracted levels in the second half of the financial year and we do not expect a full recovery in these levels until calendar 2010.
In December 2008, the Company took steps to reduce its annual operational cost base by 14 per cent. The annualised cost reduction will be approx £200,000 per annum. and certain of these reductions have commenced. The full effect of this cost reduction will be felt partly in the second half of this financial year but fully in the 2009/2010 year commencing on 1 June 2009.
In May 2008, in the light of materially improving orders and the imminent awards of two new automotive brake contracts, the board had decided to increase overheads to accelerate the milestones it wished to achieve this year within the manufacturing and engineering parts of the business. These milestones have been accomplished and the cost reductions executed last month do not affect achievement of these goals.
We now expect that full year revenues are likely to be lower than market expectations but will be considerably higher than the previous year. The full effect of the cost reduction now provides the Company with a realistic opportunity to break even in cash flow terms at much lower levels of revenue.
Financial review
In the six months ended 30 November 2008, revenues were £398,409 (2007: £ 205,997). This represents a 93.4 per cent. increase on the same period in the 2007/8 financial year with sales of automotive brake discs accounting for the majority of the increase.
As at 2 February 2009 the outstanding order book had increased to £324,428 (30 November 2008: £161,000) of which £73,388 relates to the 2009/10 financial year.
Loss after taxation, for the six month period was £396,718 (2007: £213,956).
Loss per share was 2.08p (2007: 1.28 p)
Shareholder Funds at 30 November 2008, were £1,419,219 (2007: £2,129,137), this included cash balances of £724,903 (2007: £1,592,785).
The Company has no bank borrowings.
The charge relating to Share Based Payments under IFRS 20 amounts to £43,098 in the period under review. The charge for the full year to 31 May 2009 is expected to amount to approximately £94,000. These are non cash costs.
People
With effect from 1 January 2009 Mr Julio Faria has decided to step down from the board to pursue his other business interests. Julio founded the Surface Transforms business together with Professor David Clark, in 1992 when they purchased the intellectual property from the former ICI plc. We wish Julio well for the future.
Outlook
The outlook for new business in two of our markets, Aircraft Braking and Rocket Components, is still encouraging although trading conditions in the automotive high performance braking sector have deteriorated significantly since October 2008.
Revenues in the second half of the financial year ending May 2009 are expected to be lower than our internal budgets and, therefore, full year revenues, although higher than the previous year, will be below market expectations. In addition, despite the recent cost reduction measures, the loss for the current year is now expected to be higher than 2007/08 and market expectations.
The board recognises that trading conditions for the Company's non-aerospace customers will continue to be challenging over the next 18 months. However, our focus will be on achieving new business wins in the aerospace markets, some of which have already occurred in December 2008 with more expected. In addition, some significant operating milestones have been achieved especially in the area of unit cost reduction. Lower unit cost of manufacture, a reduced annual overhead base of £200,000 and improved business in Aerospace are expected, collectively, to deliver a marked reduction in operating losses and improved cash flows in the 2009/10 financial year.
Whilst forecasting with any degree of accuracy is difficult in the current economic conditions the board remains completely focused on achieving its goals and is cautiously optimistic that the business is capable of breaking even, in cash terms, at an operational level, in the financial year ended 31 May 2010.
Finally, I would like to thank everyone at the Company for their dedication and continued hard work throughout the period.
Kevin D'SilvaChairman11 February 2009CHIEF EXECUTIVE'S REPORT
In the six months ended 30 November 2008, 82 per cent. of the revenues were derived from automotive applications. Geographically, 80 per cent. of revenues have arisen from customers based in Continental Europe.
In the period, the Company had ten aerospace and automotive clients and four of these customers (three automotive and one aerospace) were purchasing products under multi-year supply contracts.
Aerospace
Aircraft Brake Systems
Development work continued with a second US brake system supplier that covers both commercial and military aircraft principally in the USA.
Rocket Components
The Company's proprietary technology is able to deliver high performance, affordable carbon ceramic rocket propulsion components. There are two principal clients, one of which being MBDA, followed up its earlier award of a £150,000 three year development contract with a further £100,000 order for rocket components in December 2008.
These contracts and orders are essentially developmental in nature and once completed and, if successful, should become standard components of missile and rocket motor designs. The carbon ceramic material has considerable economic and reduced weight advantages when compared with the materials currently in use.
Automotive
The Company's SystemST brake disc product is now on 28 car platforms and such cars are typically priced in excess of €90,000 per car.
There are three main clients all based in Europe: (i) Koenigsegg Automotive: a supercar manufacturer based in Sweden; (ii) Movit Gmbh: a European supplier of the aftermarket for steel and ceramic brake systems; and (iii) an un-named global manufacturer of brake systems that purchases the Company's carbon fibre brake discs for the race car industry.
Two of these three clients have signed multi year supply contracts each valued at £300,000-£400,000 per annum. During the six month period under review sales to these clients have met management expectations. However, given the sharp deterioration in the global economic environment since October 2008, the board believes sales of brake discs to these clients in the second half of the current financial year will be lower than management expectations. The Directors do not anticipate a return to the previous sales levels for these customers for up to a further 12 months.
SystemST brake discs are being evaluated by a number of new car manufacturers in Europe and although it is difficult to predict when these will be completed it is encouraging to see that the current sterling exchange rate has provided the Company with a further competitive advantage.
Production and technology
ISO 9001 accreditation was achieved during October 2008. This award is essential to conducting business in the aerospace industries and with some of the larger, prospective automotive OEM clients. The completion of the CVIST development project has meant that the Company no longer has to rely on subcontracted carbon-carbon deposition suppliers for an important part of its manufacturing process. The capacity of the CVIST plant is approximately 1,000 to 1,500 automotive brake discs per annum, roughly three times the current sales volumes, and it also processes aerospace components.
Additional capacity can be achieved through further investment. As a result of the further investment the Directors anticipate the direct cost of a standard automotive brake disc could be reduced by a further 20 per cent. To date, the total investment in the CVIST process has been approximately £300,000 and 66 per cent. of this expenditure was provided by grants from the UK North West Development Agency
Operations
The 14 per cent reduction in annual operating overheads that was implemented in December makes it possible for the Company to become profitable on considerably lower levels of turnover than had originally been envisaged. This now places the Company in a position where it has a realistic opportunity to break even in cash flow terms on revenues of approximately £1.3 million per annum
Dr Kevin JohnsonChief Executive11 February 2009SURFACE TRANSFORMS PLCINCOME STATEMENT
for THE six months ended 30 November 2008
(Unaudited) (Unaudited) (Audited) Six Months Six Months Year Ended Ended ended 30-Nov 30-Nov 31-May Note 2008 2007 2008 £ £ £ Revenue 398,409 205,997 508,111 Cost of sales (202,243) (103,663) (252,874) Gross profit 196,166 102,334 255,237 Administrative expenses: Before research costs (452,453) (318,677) (678,078) Research costs (397,948) (312,314) (615,617) Total administrative expenses (850,401) (630,991) (1,293,695) Other operating income 87,791 125,682 220,652 Operating loss (566,444) (402,975) (817,806) Financial income 18,882 32,625 67,347 Loss before tax (547,562) (370,350) (750,459) Taxation 2 150,844 156,394 156,394 Loss for the period (396,718) (213,956) (594,065) Loss per ordinary share Basic and diluted 3 (2.08p) (1.28p) (3.33p)SURFACE TRANSFORMS PLCBALANCE SHEETAS AT 30 NOVEMBER 2008 (Unaudited) (Unaudited) (Audited) As at As at As at 30-Nov 30-Nov 31-May 2008 2007 2008 £ £ £ Non current assets Intangible assets - 777 - Property Plant and Equipment 390,094 334,828 382,975 Total non current assets 390,094 335,605 382,975 Current assets Inventories 297,354 221,988 258,874 Trade and Other Receivables 297,423 257,039 292,923 Cash and cash equivalents 724,903 1,592,785 1,112,719 Total current assets 1,319,680 2,071,812 1,664,516 Total assets 1,709,774 2,407,417 2,047,491 Current liabilities Trade and other payables (290,555) (278,280) (274,652) Total liabilities (290,555) (278,280) (274,652) Net assets 1,419,219 2,129,137 1,772,839 Equity Share capital 190,308 190,308 190,308 Share premium account 5,749,952 5,751,198 5,749,952 Other reserves 463,885 463,885 463,885 Retained Earnings (4,984,926) (4,276,254) (4,631,306) Total equity attributable to equity 1,419,219 2,129,137 1,772,839shareholders of the company SURFACE TRANSFORMS PLCCash flow statement
for THE six months ended 30 November 2008
(Unaudited) (Unaudited) (Audited) Six Months Six Months Year Ended Ended ended 30-Nov 30-Nov 31-May 2008 2007 2008 £ £ £ Cash flows from operating activities Loss for the period (396,718) (213,956) (594,065) Adjusted for: Depreciation charge 35,128 19,984 49,079 Amortisation charge - - 1,886
Equity settled share-based payment expenses 43,098 31,552 56,609
Financial income (18,882) (32,625) (67,347) Taxation (150,844) (156,394) (156,394) (488,218) (351,439) (710,232) Changes in working capital Increase in inventories (38,480) (9,807) (46,693) (Increase)/decrease in trade and other (4,500) 32,537 (3,347)receivables Increase in trade and other payables 15,903 19,269 15,641 (515,295) (309,440) (744,631) Finance income received 18,882 32,625 67,347 Taxation received 150,844 156,394 156,394
Net cash used in operating activities (345,569) (120,421) (520,890)
Cash flows from investing activities
Acquisition of property, plant and equipment (42,247) (64,248) (142,599)
Net cash used in investing activities (42,247) (64,248) (142,599) Cash flows from financing activities Proceeds from issue of share capital - 898,483 897,237 Net cash from financing activities - 898,483 897,237
Net (decrease)/increase in cash and cash (387,816) 713,814 233,748 equivalents
Cash and cash equivalents at the beginning 1,112,719 878,971 878,971 of the period
Cash and cash equivalents at the end of the 724,903 1,592,785 1,112,719 period
SURFACE TRANSFORMS PLC
STATEMENT OF CHANGES IN EQUITY
At 30 November 2008Unaudited six months to 30 Share Share Capital Profit and TotalNovember 2008 Capital premium reserve loss account account £ £ £ £ £ Credit in relation to share - - - 43,098 43,098based payments Net income recognised directly - - - 43,098 43,098to equity Loss for the period - - - (396,718) (396,718) Total recognised income and - - - (353,620) (353,620)expense
Opening shareholders funds at 1 90,308 5,749,952 463,885 (4,631,306) 1,772,839 June 2008
Closing shareholders funds at 190,308 5,749,952 463,885 (4,984,926) 1,419,21930 November 2008 Unaudited six months to 30 Share Share Capital Profit and TotalNovember 2007 Capital premium reserve loss account account £ £ £ £ £ Credit in relation to share - - - 31,552 31,552based payments Net income recognised directly - - - 31,552 31,552to equity Loss for the period - - - (213,956) (213,956) Issue of New Shares 50,000 848,483 - - 898,483 Total recognised income and 50,000 848,483 - (182,404) 716,079expense
Opening shareholders funds at 1 140,308 4,902,715 463,885 (4,093,850) 1,413,058 June 2007
Closing shareholders funds at 190,308 5,751,198 463,885 (4,276,254) 2,129,137 30 November 2007
Audited Year Ended 31 May 2008 Share Share Capital Profit and Total
Capital premium reserve loss account account £ £ £ £ £ Credit in relation to share - - - 56,609 56,609based payments Net income recognised directly - - - 56,609 56,609to equity Loss for the year - - - (594,065) (594,065) Issue of new shares 50,000 847,237 - - 897,237 Total recognised income and 50,000 847,237 - (537,456) 359,781expense
Opening shareholders funds at 1 140,308 4,902,715 463,885 (4,093,850) 1,413,058 June 2007
Closing shareholders funds at 190,308 5,749,952 463,885 (4,631,306) 1,772,83931 May 2008 SURFACE TRANSFORMS PLCNOTES1 Accounting PoliciesBasis of preparation
The interim financial statements are the responsibility of the Directors and were authorised and approved by the Board of Directors for issuance on 11 February 2009.
The interim financial statements of Surface Transforms PLC for the period ended 30 November 2008 were unaudited and do not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985.
This interim financial information has been prepared on the basis of recognition and measurement requirements of adopted IFRSs.
These interim financial statements have not been prepared in accordance with IAS 34 "Interim Financial Reporting". They do not include all the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Company for the year ended 31 May 2008.
The comparative figures for the year ended 31 May 2008 are not the Company's statutory accounts for the financial year. These accounts, which were prepared under adopted IFRSs, have been reported on by the Company's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in this interim report.
The financial statements have been prepared in accordance with applicable accounting standards and under the historical cost accounting rules, modified to include revaluation to fair value of certain financial instruments described below.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial statements.
Going concern
The financial statements have been prepared on a going concern basis which the directors believe to be appropriate. The Company incurred a net loss of £ 396,718 during the period however the directors are satisfied, based on detailed cash flow projections, that sufficient cash is available to meet the Company's needs as they fall due for at least 12 months from the date of signing the half yearly report. In addition revenues are expected to continue to increase in the coming periods resulting in the company becoming profitable in due course.
2 Taxation
Analysis of credit in the period/year
(Unaudited) (Unaudited) (Audited) Six months Six months Year ended ended ended 30-Nov 30-Nov 31-May 2008 2007 2008 £ £ £ UK Corporation tax Current tax on income for the period - - - Research and development tax repayment 150,844 156,394 156,394 150,844 156,394 156,394
The effective rate of tax for the period/year is lower than the standard rate of corporation tax in the UK of 28 per cent. principally due to losses incurred by the Company.
The potential deferred tax asset relating to losses has not been recognised in the financial statements because it is not possible to assess whether there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.
3 Loss per share (Unaudited) (Unaudited) (Audited) Six months Six months Year ended ended ended 30-Nov 30-Nov 31-May 2008 2007 2008 Pence Pence Pence Loss per ordinary share: Basic and diluted (2.08) (1.28) (3.33)
Loss per ordinary share is based on the Company's loss for the financial period of £396,718 (30 November 2007: £213,956; 31 May 2008: £594,065). The weighted average number of shares used in the basic calculation is 19,030,748 (30 November 2007: 16,708,199; 31 May 2008: 17,828,562).
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 share options would have the effect of reducing the loss per ordinary share and is therefore not dilutive under the terms of International Accounting Standard 33 "Earnings per share".
4. Dividends
The directors are not proposing the payment of a dividend in respect of the six months ended 30 November 2008.
5. Copies of results
Copies of the half-yearly financial results will be sent to shareholders shortly and will also be available at the Company's registered office, Unit 4, Olympic Park, Poole Hall Road, Ellesmere Port, Cheshire CH66 1ST and on the Company's website www.surface-transforms.com.
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