Surface Transforms Regulatory News (SCE)

RNS

Surface Transforms plc

("Surface Transforms" or the "Company")

Placing, Open Offer and

Notice of General Meeting

Introduction

Surface Transforms plc is pleased to announce that it has conditionally placed 3,200,000 new ordinary shares ("Placing Shares") of 1p each ("Ordinary Shares") at a price of 8p per share thereby raising gross proceeds of £256,000 (the "Placing").

In order to provide shareholders who have not taken part in the Placing with an opportunity to invest in the Company, the Company is providing all qualifying shareholders with the opportunity to subscribe, also at 8p per share, for an aggregate of 7,068,247 new Ordinary Shares ("Open Offer Shares") on the basis of 1 new Ordinary Share for every 5 existing Ordinary Shares held. Shareholders are being offered the opportunity to apply for additional Open Offer Shares in excess of their pro rata entitlements to the extent that other shareholders do not take up their entitlements in full. In the event that applications are received for in excess of 7,068,247 Open Offer Shares, excess applications will be scaled back pro rata to existing shareholdings.

Reasons for the Placing and Open Offer

As announced in the Company's half year results on 14 December 2012, the central strategy of Surface Transforms continues to be implemented, albeit at a pace slower than originally planned

·; The Company is focused on the high performance automotive and lighter aircraft brake markets

·; Market introduction in the automotive market has begun both in the retrofit market and with the specialist high performance car manufacturers. This will then progress into limited edition OEM's and finally into volume production

·; Management believes its products to be technically superior to competitor products but knows that superior technical performance alone is not enough for commercial success. The strategy is to be cost competitive, knowing what this means in terms of selling prices and margins, and the Company has clear plans to execute to achieve this target

·; The aircraft brake market takes longer to develop but is ultimately potentially more secure in revenue terms than the other markets in which the Company operates. The Company has a long standing technical and development contract with a major aerospace OEM with good progress now being made

The relationship with our key distributor retrofit partners continues with range additions - notably Porsche and Ferrari - on target for the new season. Therefore, in addition to "no more technical problems", as described in the half year results, the Company expects seasonally adjusted growth in road cars to continue in the second half of the financial year.

In aircraft brakes, our long term development project is nearing successful conclusion, with, hopefully, one final round of testing needed before the Company can move into the commercialisation phase.

As we said in the half year statement, the Board believes that there is a very strong correlation between the potential demand curve for the Company's products and the price at which those products can be delivered. The Board believes that as the price of discs is reduced, the addressable market will increase many times over. Therefore, the Board is now heavily focused on reducing production costs and it is pleasing to report that this project is on target. The Company is confident that, over time, it can compete on cost with its bigger competitor, the aim being to approximately halve production costs over a 3 year period.

The Company has identified a number of projects that will enable it to achieve these cost reductions, some of which require further working capital. To enable the Company to commence the necessary projects as soon as practicable, the Directors have been in discussions with investors with a view to raising new equity investment. The Company also continues to be in discussion with local enterprise authorities to support its cost reduction and expansion plans with incentives and grants.

The discussions with equity investors have now been finalised, culminating in the Placing, which will provide funds of £256,000. As flagged in the half year results, the Directors are also inviting all shareholders the ability to participate in the fundraising at the same price through the Open Offer. Shareholders will be able to participate pro rata to their existing shareholdings and may also apply for extra shares through the Open Offer if they so wish. Any such excess applications will be satisfied to the fullest extent possible, but to the extent that applications exceed the total number of Open Offer shares available, excess applications will be scaled back pro rata to existing shareholdings. 

The proceeds of the Placing and Open Offer, which will total up to approximately £765,000 after expenses (on the assumption that the Open Offer is taken up in full by Qualifying Shareholders), will allow the Company to make the necessary capital investments to continue to significantly expand in-house production capacity as described above, but also to provide additional working capital to support the expected growth of the business.

Other details of the Placing and Open Offer

The record date for entitlement under the Open Offer is the close of business on 5 February 2013 and the ex-entitlement date of the Open Offer is 6 February 2013. The latest time and date for receipt of completed application forms and payment in full under the Open Offer and settlement of relevant CREST instructions (as appropriate) is 11.00 a.m. on 27 February 2013.

The Open Offer Shares have not been placed subject to clawback nor have they been underwritten. Consequently, there may be none or fewer than 3,200,000 new Ordinary Shares issued pursuant to the Open Offer.

Both the Placing and Open Offer are conditional upon, amongst other things, the approval by shareholders of the resolutions at the General Meeting of the Company at 10.30 a.m. on 27 February 2013 and upon the placing agreement becoming unconditional in all respects.

Directors' participation

Mr David Bundred, Mr Kevin D'Silva and Mr Richard Gledhill, all non-executive directors of the Company, are participating in the Placing and in aggregate, have invested approximately £60,000 of the total £256,000 Placing proceeds.

Irrevocable undertakings

The Company has received irrevocable undertakings to vote in favour of the Resolutions from all of the Directors who collectively hold 8,581,023 Ordinary Shares representing approximately 26.67 per cent. of the Existing Ordinary Shares.

EIS / VCT

The Directors believe that the Placing Shares and Open Offer Shares should be eligible (subject to the circumstances of investors) for tax reliefs under the Enterprise Investment Scheme ("EIS") and for investment by Venture Capital Trusts ("VCT"). The Company has obtained advance assurance from Her Majesty's Revenue and Customs that shares in the Company represent a qualifying investment for a VCT and qualify for EIS tax reliefs. The Directors are not aware of any change in the qualifying conditions or the Company's circumstances that would prevent the Placing Shares and Open Offer Shares from being eligible VCT and EIS investments on this occasion.

Copies of the Circular will be available at the Company's registered office and principal place of business at Surface Transforms plc, Unit 4 Olympic Park, Poole Hall Road, Ellesmere Port, South Wirral, Merseyside CH66 1ST and at the offices of Gateley LLP, Ship Canal House, 98 King Street, Manchester, M2 4WU up to and including the date of Admission and on Surface Transforms' website at www.surface-transforms.com.

David Bundred, Chairman of Surface Transforms commented:

"This Placing enables the Company to move forward on the next step of its exciting development. I would therefore like to take this opportunity to thank both those new and existing shareholders who have participated in this Placing and are hopeful that existing shareholders continue to support the Company through the proposed Open Offer."

- Ends -

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