Surface Transforms Regulatory News (SCE)

23 Feb 2005 07:01

Surface Transforms PLC23 February 2005 23 February 2005 Interim results for the six months ended 30 November 2004 Surface Transforms plc, manufacturers of carbon fibre reinforced ceramic (CFRC)materials, announces its interim results for the six months ended 30 November2004. Financial and business highlights: • Turnover increased to £208,422 (30 November 2003: £175,481) • Increased investment in CFRC technology, management and technical infrastructure of the Company contributed to increased operating losses of £301,147(30 November 2003: £161,742) • New development agreement signed with leading US-based aircraft brake systems supplier • Strengthened management team • Strong cash position, £3,035,932 at 30 November 2004 Kevin D'Silva, Chairman of Surface Transforms, comments: "The strategy to develop a Company with world class technical, product andbusiness development capabilities remains unchanged despite the short termrevenue loss associated with the wide-bodied aircraft brake contract. "Revenues are expected to reduce in the second half of the financial year endingMay 2005, reflecting the loss of income from the Dunlop partnership. However,the Company is developing new business revenue streams in the automotive andaircraft brake markets, and is maintaining its increased investment in operatingand development activities." For enquiries, please contact: Surface Transforms plc Gresham PR Ltd.Julio Faria 01928 735 498 Neil Boom 020 7404 9000Kevin 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 onwww.surface-transforms.com Chairman's Statement The Company has made further progress in its principal markets since I lastreported financial results to shareholders. This includes starting developmentwork with a second global aircraft brake partner. In January we announced the disappointing news that the materials we have beenjointly developing with Dunlop Aerospace for a new wide-bodied commercialairliner would not be available in time for 2006. Despite this short-termsetback, the prospects in the automotive brakes market and in our other aircraftbrake partnership have enabled us to maintain the positive momentum developed in2003/4. Following the share placing that raised £2.7 million, the Company has increasedresearch and development expenditure relating to its proprietary new generationcarbon fibre ceramics, and appointed experienced executives and technicalpersonnel across the management and staff teams. Financial Review Turnover for the six-months ending 30 November, 2004 increased to £208,422 (2003: £175,481), while operating losses on ordinary activities were higher at£301,147 (2003: £161,742). The increased operating losses were largely due to a substantial increase indevelopment costs relating to the board's decision to accelerate investment incarbon fibre reinforced ceramic technology, in the management team and intechnical personnel. Losses after tax were higher at £180,277 (2003: £39,424) reflecting lowerresearch and development tax credits and grants of £58,562 (2003: £119,685). The Company's cash and working capital position remains healthy demonstratingthe strong financial disciplines of the business despite continued investment inthe development of the CFRC technology. At 30 November 2004, the Company heldcash and deposits of £3,035,932 (May 2004: £2,707,839) representing in excess of21 pence per share. Surface Transforms continues to have no bank borrowings. The strong cash position will allow the board to continue its strategy ofdeveloping and commercialising its technology across its chosen marketapplications, notably automotive and aircraft brakes and aerospace components. Management As previously announced Dr Kevin Johnson, Operations Director, and AntoniSznerch, Business Development Director, have joined Julio Faria, Dr Geoff Gouldand Johannah Stretton as executive officers. To meet the challenging targets inaircraft and automotive brake business development, together with goals inoperations and technology, non-executive director Peter Holland has agreed toco-ordinate management activities for a six-month period to June 2005. Peter hasa 25-year record of successful management in an industrial chemical company,which he sold in 2002. Science and Technology Group The Company has re-organised internally, to form a new Science and TechnologyGroup, headed by Julio Faria. This group will focus on maintaining the Company'slead in CFRC technology and continues to draw on the scientific expertise of non-executive director, Professor David Clark. In September 2004, the boardinitiated investment in a next generation CFRC siliconisation plant to replacethe Company's existing process technology. The new plant is expected to becommissioned at the end of 2005 and it should substantially improve theoperating characteristics of the CFRC technology. Operating Activities Automotive Brake Systems Surface Transforms has invested heavily in the past six months in the automotivebrake market, specifically the high-performance road car segment. Theco-operation agreement with METEK was signed in May 2004 and orders were takenfor the "System ST" brake & pad, which was successfully launched in November2004 at a major automotive aftermarket trade show in Essen. A number of European car manufacturers who produce high-performance, low volumecars, have shown interest in evaluating "System ST". Shareholders will beupdated once material progress has been made. The High Performance Road Car market offers significant commercial opportunitiesfor carbon ceramic brakes and the Company's strategy for European market entryhas recently been revised. It involves using System ST products for: •entry into the automotive aftermarket for brake system upgrades •entry into the automotive Original Equipment Manufacture (OEM) market for high volume, peformance car models •entry into the automotive OEM market for low volume, performance car models The high volume OEM market is substantial and the time for material evaluationand qualification for a new brake is necessarily long. The Company iscooperating with METEK in this field. The low volume OEM market is attractive as there are a number of car producersconsidering carbon ceramic brakes to improve the braking power, performance andattraction of their cars. The performance car aftermarket The automotive aftermarket for brake discs is large and there is increasinginterest in carbon ceramic brakes. Surface Transforms is seeking opportunitiesto supply the performance car aftermarket within Europe and will informshareholders of developments at the appropriate time. Aircraft Brakes The Company has separate development programmes for carbon ceramic aircraftbrake discs with two global suppliers of aircraft braking systems. DunlopAerospace is the European supplier and development work commenced some threeyears ago, accelerating when a Master Licence agreement was signed in November2003. As already stated, the Company's CFRC brake materials will not be includedon a new, wide-bodied European aircraft being certified for flight in 2006. Theperformance evaluation period required to fully evaluate, qualify andmanufacture brake discs for this aircraft model exceeded the aircraft's launchtimetable. This will reduce expected 2005 revenues by approximately £150,000 and willcancel projected licence income scheduled to start in 2008. The Companycontinues to work with Dunlop under the Master Licence Agreement. In January 2005, Surface Transforms signed a materials development programmewith a leading US-based aircraft brake systems supplier. The programme is at anearly stage and the risks that relate to a high-performance technology projectare always an important consideration. Nevertheless, the goals of both partiesare to qualify carbon ceramic brake discs for use on selected, new and existingaircraft models. Aerospace Components and Anti Ballistic Materials Roxel UK and Roxel France are the principal customers for Surface Transforms'non-friction materials for use in rocket motors. Co-operation between the twocompanies continues to expand. The 12-month development contract with the US Airforce Research Laboratory(AFRL) was completed during the period under review. The feedback from AFRL isthat material testing has been very successful. The Company has submittedproposals for a substantial expansion to the development programme but award issubject to the AFRL's budget constraints. The contract with the UK Ministry of Defence to develop and evaluate antiballistic materials continues to progress and results should be available in thenext six months. Outlook The strategy to develop a company with world class technical, product andbusiness development capabilities remains unchanged despite the short termrevenue loss associated with the wide-bodied aircraft brake contract. Revenues are expected to reduce in the second half of the financial year endingMay 2005, reflecting the loss of income from the Dunlop partnership. However,the Company is developing new business revenue streams in the automotive andaircraft brake markets, and is maintaining its increased investment in operatingand development activities. The new business contract awarded to the Company during the periodunder review reflects the hard work and dedication of all employees. I wouldlike to express my thanks to them and again extend a warm welcome to those newcolleagues who have joined us recently. Kevin D'SilvaChairman22 February 2005 SURFACE TRANSFORMS PLC PROFIT AND LOSS ACCOUNT FOR THE SIX MONTHS ENDED 30 NOVEMBER 2004 (Unaudited) (Unaudited) (Audited) Six months Six months Year ended ended ended Note 30 November 30 November 31 May 2004 2003 2004 £ £ £ Turnover 208,422 175,481 428,608 Cost of sales (60,581) (65,749) (117,461) --------- ---------- ----------Gross profit 147,841 109,732 311,147 Distribution costs (751) (693) (1,261)Administrative expenses: (239,158) (256,289) (473,479)Before development costsDevelopment costs (209,079) (44,462) (123,349) --------- ---------- ---------- Total administrativeexpenses (448,237) (300,751) (596,828 ) --------- ---------- ---------- Other operating income - 29,970 29,970 --------- ---------- ----------Operating loss (301,147) (161,742) (256,972)Interest receivable 63,528 2,633 7,763Interest payable (1,220) - - --------- ---------- ---------- Loss on ordinary activitiesbefore taxation (238,839) (159,109) (249,209)Taxation on loss onordinary activities 2 58,562 119,685 119,685 --------- ---------- ----------Loss on ordinary activitiesafter taxation and retainedfor the financial period/year (180,277) (39,424) (129,524) ========= ========== ==========Loss per ordinary shareBasic and diluted 3 (1.33p) (0.42p) (1.36p) ========= ========== ========== The Company's operating loss arises from continuing operations. The Company has no recognised gains or losses in these periods/years other thanthose reported above and therefore no statement of total recognised gains andlosses has been presented. SURFACE TRANSFORMS PLC BALANCE SHEET AS AT 30 NOVEMBER 2004 (Unaudited) (Unaudited) (Audited) As at As at As at 30 November 30 November 31 May 2004 2003 2004 £ £ £Fixed assetsIntangible assets 7,431 9,649 8,540Tangible assets 64,813 77,254 56,037 ----------- ---------- ---------- 72,244 86,903 64,577 ----------- ---------- ----------Current assetsStocks 77,748 79,330 88,683Debtors 191,838 212,341 506,011Cash at bank and in hand 3,035,932 319,464 2,707,839 ----------- ---------- ---------- 3,305,518 611,135 3,302,533 ----------- ---------- ----------Creditors:Amounts falling due within one year (132,441) (114,352) (97,075) ----------- ---------- ----------Net current assets 3,173,077 496,783 3,205,458 ----------- ---------- ----------Net assets 3,245,321 583,686 3,207,035 =========== ========== ==========Capital and reservesCalled up share capital 140,308 94,441 132,158Share capital to be issued - - 4,750Share premium account 4,902,715 2,016,570 4,750,552Other reserves 520,399 520,399 520,399Profit and loss account (2,318,101) (2,047,724) (2,137,824) ----------- ---------- ----------Equity shareholders' funds 3,245,321 583,686 3,270,035 =========== ========== ========== RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS FOR THE SIX MONTHS ENDED 30 NOVEMBER 2004 (Unaudited) (Unaudited) (Audited) Six months Six months Year ended ended ended 30 November 30 November 31 May 2004 2003 2004 £ £ £ Loss for the period/year (180,277) (39,424) (129,524)New share capital issued(net of issue costs) 155,563 49,437 2,825,886 ---------- ---------- ----------Net (reduction in)/additionto shareholders' funds (24,714) 10,013 2,696,362 Opening shareholders' funds 3,270,035 573,673 573,673 ---------- ---------- ----------Closing shareholders' funds 3,245,321 583,686 3,270,035 ========== ========== ========== SURFACE TRANSFORMS PLC CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30 NOVEMBER 2004 (Unaudited) (Unaudited) (Audited) Six months Six months Year ended ended ended 30 November 30 November 31 May 2004 2003 2004 Note £ £ £ Cash flow fromoperating activities 4 (240,482) (69,050) (249,202) ---------- ---------- ----------Returns on investments andservicing of financeInterest received andsimilar income 52,778 2,633 7,763 ---------- ---------- ----------Total returns on investmentsand servicing of finance 52,778 2,633 7,763 ---------- ---------- ---------- Taxation received 58,562 158,850 278,535 Capital expenditurePurchase of tangiblefixed assets (30,828) (581) (818) ---------- ---------- ---------- Total capital expenditure (30,828) (581) (818) ---------- ---------- ---------- Cash (outflow)/ inflow beforefinancing and management ofliquid resources (159,970) 91,852 36,278 Management of liquid resourcesCash placed on treasurydeposit (252,247) - (2,635,000) ---------- ---------- ----------Total management of liquidresources (252,247) - (2,635,000) ---------- ---------- ----------FinancingIssue of ordinary share capital 8,150 642 38,359Premium from issue of ordinaryshare capital (net of issuecosts) 327,750 - 2,393,851Premium on exercise of warrants 152,163 48,795 61,176 ---------- ---------- ----------Total financing 488,063 49,437 2,493,386 ---------- ---------- ----------Increase/(decrease) in cash 5 75,846 141,289 (105,336)in the period/year ========== ========== ========== SURFACE TRANSFORMS PLC NOTES 1 Basis of preparation The 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 2004 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 2004, was approved bythe Board on 22 February 2005. 2 Taxation Analysis of credit in the period/year (Unaudited) (Unaudited) (Audited) Six months Six months Year ended ended ended 30 November 30 November 31 May 2004 2003 2004 £ £ £UK Corporation taxCurrent tax on incomefor the period - - -Research and developmenttax repayment 58,562 119,685 119,685 ----------- ------------ ---------- 58,562 119,685 119,685 =========== ============ ========== The effective rate of tax for the period/year of nil is lower than the standardrate of corporation tax in the UK of 30% due principally to losses incurred bythe company. 3 Loss per share (Unaudited) (Unaudited) (Audited) Six months Six months Year ended ended ended 30 November 30 November 31 May 2004 2004 2003 Pence Pence PenceLoss per ordinary share:Basic (1.33) (0.42) (1.36)Diluted (1.33) (0.42) (1.36) =========== ============ ========== Loss per ordinary share is based on the Company's loss for the financial periodof £180,277 (30 November 2003: £39,424; 31 May 2004: £129,524). The weighted average number of shares used in the basic calculation is13,581,249 (30 November 2003: 9,387,130; 31 May 2004: 9,506,297). The calculation of diluted loss per ordinary share is identical to that used forthe basic loss per ordinary share. This is because the exercise of warrantswould have the effect of reducing the loss per ordinary share and is thereforenot dilutative under the terms of FRS14. 4 Reconciliation of operating loss to net cash outflow from operating activities (Unaudited) (Unaudited) (Audited) Six months Six months Year ended ended ended 30 November 30 November 31 May 2004 2003 2004 £ £ £ Total operating loss (301,147) (161,742) (256,972)Depreciation andamortisation charges 23,161 22,329 44,892Decrease/(increase) instock 10,935 (9,262) (18,615)(Increase)/decrease indebtors (7,577) 42,881 (37,974)Increase in creditors 34,146 36,744 19,467 ------------ ----------- -----------Net cash outflowfrom operating activities (240,482) (69,050) (249,202) ============ =========== =========== 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 2004 2003 2004 £ £ £Increase/(decrease) in cash inthe period/year 75,846 141,289 (105,336)Increase in liquidresources 252,247 - 2,635,000 ----------- ------------ -----------Movement in net fundsin the period/year 328,093 141,289 2,529,664 Net funds at the startof the period/year 2,707,839 178,175 178,175 ----------- ------------ -----------Net funds at the end of theperiod/year 3,035,932 319,464 2,707,839 =========== ============ =========== This information is provided by RNS The company news service from the London Stock Exchange