Surface Transforms Regulatory News (SCE)

28 Feb 2006 07:00

28 February 2006 Interim results for the six months ended 30 November 2005 Surface Transforms plc, manufacturers of carbon fibre reinforced ceramic (CFRC)materials, announces its interim results for the six months ended 30 November2005.Financial and business highlights: * Turnover of ‚£68,302 (2004: ‚£208,422) * Losses before taxation of ‚£478,588 (2004: ‚£238,839) * Strong cash position of ‚£2.1 million (31 May 2005: ‚£2.7 million), representing approximately 15 pence per share * ‚£200,000 grant received to develop and complete the new generation production process ST-Tech 2 * The Company is concentrating efforts on smaller, high performance car OEMs and on the UK and German aftermarket for ceramic brakes For enquiries, please contact:Surface Transforms plc John East & Partners Limited Kevin Johnson 0151 472 3733 Simon Clements 020 7628 2200 Julio Faria 0151 472 3733 Kevin D'Silva 07802 306956 Details of the Company's business and financial performance and its share pricecan be found on www.armshare.com which is accessed from the Armshare icon on www.surface-transforms.com.Armshare has provided a webcast of these results and this is available onwww.surface-transforms.com under the Investor Relations icon. SURFACE TRANSFORMS PLC Interim results for the six months ended 30 November 2005 Surface Transforms plc, a manufacturer of carbon fibre reinforced ceramic(CFRC) materials, announces its interim results for the six months ended 30November 2005.Chairman's statementIn the six months under review, the new management team, led by Dr. KevinJohnson, has been able to progress and accelerate plans in four principal areasof the Company's operations: * a strengthening of the intellectual property platform of the Company; * the completion of the Company's next generation production process for manufacturing carbon ceramic brake discs; * the development of a carbon ceramic disc brake for commercial aircraft in conjunction with a large US based aircraft brake system supplier; and * the commercialisation of the Company's SystemST ceramic brake system for high performance cars.FINANCIAL REVIEWIn the six months ended 30 November 2005 turnover was ‚£68,302 (30 November2004: ‚£208,442). This is an increase of 37 per cent. from the ‚£49,914 achievedfor the preceding six months, although the loss of the development contractwith Dunlop Aerospace means that it is less than for the comparative period in2004. Revenues in the period under review comprised development fees from a USaircraft brake system supplier, sales of ceramic rocket components to Roxel anda small level of automotive ceramic brake discs, principally for testing.Losses after tax for the period were ‚£367,011 (30 November 2004: loss ‚£180,277), again reflecting the loss of the Dunlop Aerospace developmentcontract and the board's decision to strengthen both the management team andthe Company's operating capabilities and processes. When the current period iscompared to the ‚£436,346 loss of the previous six month period ended 31 May2005, it indicates that costs and expenditure have been stabilised. TheDirectors do not anticipate overheads increasing beyond the current levelsuntil there is firm evidence of increased sales in the automotive brake discbusiness.Shareholder funds at 30 November 2005 amounted to ‚£2,441,964 (31 May 2005: ‚£2,808,975) and include cash on deposit of ‚£2.1 million (representing 15 penceper share). Capital expenditure in the period was ‚£118,762. The Company has noborrowings.SCIENCE & TECHNOLOGYThe ‚£200,000 grant from the English Northwest Development Agency, announced on15 November 2005, will be utilised in the development and completion of the newgeneration production process ST-Tech 2.Once completed, the new plant is expected to reduce the cost of producingautomotive discs significantly. The new plant has the design capacity toproduce up to 3,000 discs per annum. For larger volumes, the Company's businessmodel incorporates the sale and commissioning of the technology under licenceat the client's production site.Capital expenditure on the new ST Tech 2 production system is anticipated tofall mainly within the CVIST and MIST sub processes. Part of this expenditureis specifically covered by the terms of the ‚£200,000 grant. The new productionsystem is expected to be completed within 12 months.The Company has submitted 3 new patent applications during the period in orderto supplement its existing patent portfolio.AIRCRAFT BRAKE SYSTEMSThe Company maintains brake development programmes with three global suppliersof aircraft brakes. There are two European clients and one is in the USA. Therehas been extensive development work with the US client and Phase 1 of theprogramme, comprising base measurements of wear and friction, are nearingcompletion and the Directors anticipate this development work will continue inthe next twelve months.Revenues arising from such development contracts are usually earned monthly orquarterly; they are linked to project milestones and typically accrue over aperiod of 6 to 18 months. The work is, by definition, developmental in nature,and therefore it is difficult to forecast the timing of the eventual acceptanceof the first ceramic brake discs for commercial aircraft - nevertheless theCompany continues to maintain its development programme in this area given thelarge target market.AUTOMOTIVE BRAKING SYSTEMSWhilst development of the commercial use of carbon ceramic brakes with thelarger automotive OEM companies continues, the Company has been focussing itsnear term efforts on smaller, high performance car OEMs and on the UK andGerman aftermarket for ceramic brakes.SystemST, the Company's proprietary brand, has significant product advantagesand differentiation over its competitors. The SystemST ceramic brakes can beused for both track and road applications due to the inherent strength of theCFRC construction and recent track days at the Anglesey race track haveconfirmed the Company's product specification. The www.systemST.com websitedisplays the latest testing results.The introduction of a new, high technology product is never straightforwardparticularly in terms of customer uptake. Nevertheless, evaluation programmesare advancing with a number of UK car manufacturers. Early successes areevidenced by initial brake disc orders received from Weber Sportcars inSwitzerland, which is building a ‚£300,000 plus supercar for launch later thisyear.Koenigsegg Automotive of Sweden (www.koenigsegg.com) has purchased and isevaluating the Company's ceramic brakes for installation on its supercars. The800bhp CCR supercar set new records as Europe's fastest production car in 2005.A new model the CCX is being shown at the Geneva Motor Show in early March andit is fitted with SystemST. The Company's progress in the performance brakeaftermarket has been slower than predicted. Sales in the German market havebeen very disappointing and as a result the business development contract withMETEK is being terminated and the intention is to enter into a replacementtrading arrangement.In the UK, SystemST brakes have been initially targeted at Porsche and Ferrariusers. Prospective UK clients are currently directed to the Company's brakefitting partners for fitting and purchase. Sales are still at a very low leveland the board's expectation is that it will take some time to reach targetedvolumes. Nevertheless, some of our shareholders have already purchased ceramicbrakes for their high performance cars and today the Company has launched aspecial introductory promotion for ceramic brakes for all UK shareholders whohave cars that would benefit from the use of ceramic brake systems. A separateletter dealing with this attractive promotion accompanies this statement and isbeing mailed to all shareholders and can be viewed on the www.systemST.comwebsite.PEOPLEPeter Holland has been instrumental in guiding the reshaping of the Company inthe past two years and with his retirement from the board, the Company wouldlike to record its appreciation of that contribution.We completed the enlargement of our new management team during December 2005.Dr. Maria Hadjisoteriou, BSc, PhD, joined the Company as Operations Manager incharge of all the production processes.Our planned growth is based on selecting and retaining a strong,entrepreneurial management team and I take this opportunity of thanking all mycolleagues for their hard work and enthusiasm in creating an environment oftrust and opportunity for professional growth.OUTLOOKDespite the lower sales and financial performance in the period under review,the board believes it has made material progress in both reducing the businessrisk in the Company and in improving the capability of successfullyimplementing its business strategy. This is already reflected in the quality ofthe discussions we are having with potentially important commercial partners.Looking ahead, we expect in the short to medium term to demonstrate the firstcommercial success in the automotive brake market with one of the smaller highperformance, car OEMs.Kevin D'SilvaChairman28 February, 2006PROFIT AND LOSS ACCOUNTFOR THE SIX MONTHS ENDED 30 NOVEMBER 2005 (Unaudited) (Unaudited) Six months Six months (Audited) ended ended Year ended Note 30 November 30 November 31 May 2005 2004 2005 ‚£ ‚£ ‚£ Turnover 68,302 208,422 258,336 Cost of sales (33,120) (60,581) (93,846) Gross profit 35,182 147,841 164,490 Distribution costs (463) (751) (1,348) Administrative expenses: (299,775) (239,158) (500,574) Before development costs Development costs (270,711) (209,079) (472,978) Total administrative (570,486) (448,237) (973,552)expenses Other operating income 5,621 - 4,980 Operating loss (530,146) (301,147) (805,430) Interest receivable 51,558 63,528 131,480 Interest payable - (1,220) (1,235) Loss on ordinary activities before taxation (478,588) (238,839) (675,185) Taxation on loss on 2 111,577 58,562 58,562ordinary activities Loss on ordinary activities after taxation and retained for (367,011) (180,277) (616,623)the financial period/year Loss per ordinary share Basic and diluted 3 (2.62p) (1.33p) (4.47p) All amounts relate to continuing activities.BALANCE SHEETAS AT 30 NOVEMBER 2005 (Unaudited) (Unaudited) (Audited) As at As at As at 30 November 30 November 31 May 2005 2004 2005 ‚£ ‚£ ‚£ Fixed assets Intangible assets 5,213 7,431 6,322 Tangible assets 173,629 64,813 73,877 178,842 72,244 80,199 Current assets Stocks 143,100 77,748 67,522 Debtors 129,275 191,838 80,991 Cash at bank and in hand 2,102,064 3,035,932 2,728,052 2,374,439 3,305,518 2,876,565 Creditors: Amounts falling due within one (111,317) (132,441) (147,789)year Net current assets 2,263,122 3,173,077 2,728,776 Net assets 2,441,964 3,245,321 2,808,975 Capital and reserves Called up share capital 140,308 140,308 140,308 Share premium account 4,902,715 4,902,715 4,902,715 Other reserves 463,885 520,399 463,885 Profit and loss account (3,064,944) (2,318,101) (2,697,933) Equity shareholders' funds 2,441,964 3,245,321 2,808,975STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESFOR THE SIX MONTHS ENDED 30 NOVEMBER 2005 (Unaudited) (Unaudited) (Audited) Six months Six months Year ended ended ended 30 November 30 November 31 May 2005 2004 2005 ‚£ ‚£ ‚£ Loss for the financial period/year (367,011) (180,277) (616,623) Unrealised gain on the lapse of - - 56,514warrants Total recognised gains and losses (367,011) (180,277) (560,109)for the financial period/year RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDSFOR THE SIX MONTHS ENDED 30 NOVEMBER 2005 (Unaudited) (Unaudited) (Audited) Six months Six months Year ended ended ended 30 November 30 November 31 May 2005 2004 2005 ‚£ ‚£ ‚£ Loss for the period/year (367,011) (180,277) (616,623) New share capital issued (net of issue costs) - 155,563 155,563 Net reduction in shareholders' (367,011) (24,714) (461,060)funds Opening shareholders' funds 2,808,975 3,270,035 3,270,035 Closing shareholders' funds 2,441,964 3,245,321 2,808,975CASH FLOW STATEMENTFOR THE SIX MONTHS ENDED 30 NOVEMBER 2005 (Unaudited) (Unaudited) (Audited) Six months Six months Year ended ended ended 30 November 30 November 31 May 2005 2004 2005 Note ‚£ ‚£ ‚£ Cash outflow from operating activities 4 (681,688) (240,482) (581,555) Returns on investments and servicing of finance Interest received and similar 62,885 52,778 118,918income Total returns on investments and servicing of finance 62,885 52,778 118,918 Taxation received 111,577 58,562 58,562 Capital expenditure Purchase of tangible fixed (118,762) (30,828) (63,775)assets Total capital expenditure (118,762) (30,828) (63,775) Cash outflow before financing and management of liquid resources (625,988) (159,970) (467,850) Management of liquid resources Cash transferred from/ (placed) on treasury deposit 614,839 (252,247) 3,000 Total management of liquid resources 614,839 (252,247) 3,000 Financing Issue of ordinary share - 8,150 8,150capital Premium from issue of ordinary share capital (net of issue costs) - 327,750 327,750 Premium on exercise of - 152,163 152,163warrants Total financing - 488,063 488,063 (Decrease)/increase in cash 5 (11,149) 75,846 23,213in the period/year 1 Basis of preparationThe interim financial statements have been prepared on the basis of theaccounting policies set out in the Company's last Annual Report and Accounts.The comparative figures for the financial year ended 31 May 2005 are not thecompany's statutory accounts for that financial year. Those accounts have beenreported on by the company's auditors and delivered to the registrar ofcompanies. The report of the auditors was unqualified and did not contain astatement under section 237 (2) or (3) of the Companies Act 1985.The interim report for the six months ended 30 November 2005, was approved bythe Board on 27 February 2006.2 TaxationAnalysis of credit in the period/year (Unaudited) (Unaudited) (Audited) Six months ended Six months ended Year ended 30 November 30 November 31 May 2005 2004 2005 ‚£ ‚£ ‚£ UK Corporation tax Current tax on income for the period - - - Research and development tax repayment 111,577 58,562 58,562 111,577 58,562 58,562The effective rate of tax for the period/year of nil is lower than the standardrate of corporation tax in the UK of 30% principally due to losses incurred bythe Company.3 Loss per share (Unaudited) (Unaudited) (Audited) Six months ended Six months ended Year ended 30 November 2005 30 November 31 May 2004 2005 Pence Pence Pence Loss per ordinary share: Basic (2.62) (1.33) (4.47) Diluted (2.62) (1.33) (4.47)Loss per ordinary share is based on the Company's loss for the financial periodof ‚£367,011 (30 November 2004: ‚£180,277; 31 May 2005: ‚£616,623).The weighted average number of shares used in the basic calculation is14,030,748 (30 November 2004: 13,581,249; 31 May 2005:13,805,406).The calculation of diluted loss per ordinary share is identical to that usedfor the basic loss per ordinary share.4 Reconciliation of operating loss to net cash outflow from operatingactivities (Unaudited) (Unaudited) (Audited) Six months Six months Year ended ended ended 30 November 30 November 31 May 2005 2004 2005 ‚£ ‚£ ‚£ Total operating loss (530,146) (301,147) (805,430) Depreciation and amortisation charges 20,119 23,161 48,153 (Increase)/decrease in (75,578) 10,935 21,161stock (Increase)/decrease in (59,611) (7,577) 103,847debtors (Decrease)/increase in creditors (36,472) 34,146 50,714 Net cash outflow from operating (681,688) (240,482) (581,555)activities 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 2005 2004 2005 ‚£ ‚£ ‚£ (Decrease)/increase in cash in the period/year (11,149) 75,846 23,213 (Decrease)/increase in (614,839) 252,247 (3,000)liquid resources Movement in net funds in the period/year (625,988) 328,093 20,213 Net funds at the start of the period/year 2,728,052 2,707,839 2,707,839 Net funds at the end of 2,102,064 3,035,932 2,728,052the period/year * Dividends The directors are not proposing the payment of a dividend in respect of the sixmonths ended 30 November 2005.7 Copies of interim results will be sent to shareholders shortly and will alsobe available at the Company's registered office, Cheshire Innovation Park, Unit306, Pool Lane, Ince, Cheshire CH2 4NU.ENDSURFACE TRANSFORMS PLC