RNS Number:2617P
Surface Transforms PLC
02 September 2003
2 September 2003
Preliminary results for the year ended 31 May 2003
Surface Transforms plc, manufacturers of high technology carbon ceramic
materials, announces preliminary results for the year ended 31 May 2003.
Financial and business highlights:
* Introduced new business model following strategic review in February
2003
* Successfully increased revenues from significantly lower cost base
* Increased turnover by 130% to #240,000 (2002: #104,000)
* Operating loss before tax of #1.13 million, with the second half losses
falling to #333,000.
* Partnership with world-leading aircraft brake systems manufacturer now
producing regular monthly revenues
* Strengthened board with the appointments of two non-executive
directors, both have experience of building profitable high technology
businesses
* Moved from Ofex to the AIM market and raised #1.3 million (#0.9 million
net)
Derek Whitney, Chairman of Surface Transforms, comments:
"The Company has made good progress and we have achieved some important
milestones in our principal aerospace and automotive markets. Following the
strategic review and the management and board changes, the Company has now
embarked on the next phase of expansion which will see our technology have
broader application in our target markets. These markets include additional
commercial and military aircraft brake systems, rocket motor systems, clutch pad
applications in Formula 1, high performance and GT cars and a number of other
industrial and defence applications."
For enquiries please contact:
Julio Faria Neil Boom
Managing Director Managing Director
Surface Transforms plc Gresham PR Ltd.
01928 735 498 020 7404 9000
Chairman's Statement
The Company has made good progress and has achieved some important milestones in
its principal aerospace and automotive markets. Following a strategic review,
the Company is now focussed on three core activities as it develops its
proprietary carbon ceramic technologies. These are (1) knowledge based
collaborative ventures with global commercial partners in aircraft braking and
rocket propulsion materials. (2) contract development activity with commercial
partners in the automotive and transportation markets where carbon fibre
reinforced ceramic (CFRC) application opportunities abound; and (3) CFRC product
sales.
Financial Results
Turnover for the year was 130% higher than the previous period at #239,755
(2002: #104,063). Operating losses for the year were #1,129,909 (2002: #569,033
loss) and these included non-recurring, exceptional costs associated with the
write down of #293,048 of inventory relating to the change in the Company's
approach to the Formula 1 automotive market. Operating losses before exceptional
items were #836,861 (2002: #569,033 loss).
In February, the Board initiated a strategic review which resulted in the
substantial reduction of the Company's cost base in the second half of the year.
Operating losses in the second half of the year reduced to #332,637 (full year
2003 : #1,129,909 loss)
The Company's cash and working capital position has been stabilised since the
year end; this has resulted from improved trading and the receipt of substantial
R&D tax credits relating to the previous two years. The Company has no bank
borrowings.
Operating Activities
AIRCRAFT BRAKES
The collaborative partnership with a world-leading aircraft brake systems
supplier continues to progress well and our partner has committed considerable
financial and technical resources to the technical collaboration. In December
2002, the Company delivered the initial pilot plant on time and on budget. This
plant is producing test brake materials for a yet-to-be-launched wide-bodied
commercial jet airliner. Work is progressing on the full-scale plant design and
Surface Transforms is discussing important service and licence agreements with
its partner which should underpin future income and long term licence payments
if Surface Transforms's technology is ultimately adopted on the targeted
aircraft.
Surface Transforms's materials are included in the test programme because of
their weight-saving advantages over rival products. In the aerospace market
small weight savings can produce substantial reductions in aircraft running
costs, a crucial element in the decision-making process for all aircraft buyers.
Surface Transforms's products have a considerable technical edge. As ever,
shareholders should be aware that as with all new leading-edge technologies
there are no guarantees that the Surface Transforms's technology will ultimately
be adopted on the aircraft. Nevertheless, progress to date and the investment
made by our partner is encouraging and indicates that Surface Transforms's
product has applications as an economic solution for a variety of aircraft
braking requirements.
AUTOMOTIVE MARKETS
After the disappointment in December 2002 of the FIA rule change, stipulating
one supplier only for the F1 brake market, the Company has sought to widen the
market application opportunities it has with its proprietary CFRC technology.
Indy Racing and GT
In January 2003, Surface Transforms received its first order to supply
development brake discs and pads from one of the most successful teams that
competes in the Indy Car Racing League (IRL). The order, for the supply of brake
discs and pads, has been delivered and the Company is working closely with the
US distributor to evaluate the brake pad prototypes to market CFRC brakes to
other IRL teams.
Entry to the GT car market has been recent and testing has commenced with two
established GT racing teams, both of which have conducted a number of successful
on-car tests and off-car assessments. This market is expected to have good
potential for Surface Transforms over the longer term.
High Performance Cars
Surface Transforms is collaborating on developing and testing products with a
leading international supplier of complete braking systems to a number of the
car manufacturing majors. The Company's partner's sales are in both the OEM
(original equipment manufacture) and the after markets.
CARBON FIBRE PREFORMS
Several orders for carbon fibre preforms have been successfully completed and
delivered satisfactorily to customers. The Company is now well-placed to push
ahead for a greater penetration of this market. In preparation for a focused
sales campaign, the needling plant has been relocated to a new, self-contained
unit that is much better suited to production than the previous location. There
is confidence that the personnel and resources are available to significantly
increase the Company's share of the carbon preforms market.
OTHER MARKET APPLICATIONS
Surface Transforms has been working since 2001 in development programmes to
supply a bespoke rocket propulsion part to a division of BAe Systems called
Roxel. Testing on the lightweight rocket component continues to progress. The
Company has recently been invited by Roxel to tender for a second programme
requiring a different specification part to be supplied in CFRC material.
In the rail market, Surface Transforms has supplied the development partner
SabWabco, the world's leading supplier of complete rail brake systems, with
several full-scale rotors as part of a new programme for a lightweight rail
project.
Work on products for two important and fast-growing new market applications for
resin transfer moulding and ballistics is providing encouraging results, and
demonstrates that Surface Transforms's CFRC technology can be used more broadly
in commercial contexts. The Company shall report on these in more detail as
these development projects mature.
Directors and the Board
The expansion of the Company, the listing on AIM and the recently initiated
Company-wide strategic review have ushered in a number of changes on the board
designed to provide a platform for future expansion.
The executive directors are Julio Faria, Managing Director and Dr. Geoff Gould,
Sales & Marketing Director. David Levis, Commercial Director, has expressed his
intention to resign from the Company and pursue his other interests. His
contribution to the Company over the past three years has been significant and
we wish him well with his future career. We shall shortly be appointing a
Financial Controller, with the intention that this is made a board appointment
after an appropriate period.
Kevin D'Silva joined the board in March 2003 as a non-executive director. He has
extensive strategic business experience in the public company arena and an
excellent track record in the building of a fast-growing, profitable
technological group. In April this year, Peter Holland joined the board as a
non-executive -director,and brought with him the scientific and marketing
experience accumulated over 20 successful years in the chemical polymer
processing and formulation business. David Williams left the board in April 2003
and returned to his Formula 1 career as an executive director in the Jordan
team. I would like to place on record the thanks of all connected with the Group
to David Williams.
After three years as Chairman, which saw Surface Transforms float successfully
on Ofex and then move to AIM, I shall not be seeking re-election as director at
the forthcoming Annual General meeting and the board has elected Kevin D'Silva
to succeed me as Chairman. I shall continue to remain a shareholder and expect
that the new senior managerial talent that has been introduced to the Company
will progress the business through its next phases of expansion.
Outlook
Following the strategic review and the management and board changes, the Company
has recently commenced the next phase of expansion, which will see Surface
Transforms's technology have broader commercial applications in its target
markets. These will include additional commercial and military aircraft braking
systems, rocket motor systems, clutch applications, high performance and GT cars
and a number of other industrial and defence applications.
The prospects within the Company's chosen application markets have widened
considerably this past calendar year, despite the disappointments in the Formula
1 market. The revised business model, focuses, alongside CFRC product sales, on
collaborative and contract development of its CFRC technology with a larger
range of clients. This strategy reduces over-dependence on a few large client
projects, while at the same time improves cash inflow and application diversity,
and over the longer term should lead to the greater commercial adoption of
Surface Transforms's unique CFRC technology.
SURFACE TRANSFORMS PLC
PROFIT & LOSS ACCOUNT
YEAR ENDED 31 MAY 2003
Note 2003 2003 2003 2002
Before Exceptional After As restated
exceptional items exceptional (see note 2)
items (see note 4) items
# # # #
Turnover 239,755 - 239,755 104,063
Cost of (105,814) (293,048) (398,862) 218,120
sales
--------------- ---------------- -------------- ----------------
Gross profit/ 133,941 (293,048) (159,107) 322,183
(loss)
Distribution (2,552) - (2,552) (12,043)
costs
Administrative (617,644) - (617,644) (409,271)
expenses
before
development
costs
Development (350,606) - (350,606) (479,902)
costs
Other - - - 10,000
operating
income
--------------- ---------------- -------------- ----------------
Operating (836,861) (293,048) (1,129,909) (569,033)
loss
--------------- ----------------
Interest 6,677 7,968
receivable and
similar
income
-------------- ----------------
Loss on
ordinary
activities
before (1,123,232) (561,065)
taxation
Tax on loss on 158,850 -
ordinary
activities
-------------- ----------------
Loss on
ordinary
activities
after taxation (964,382) (561,065)
and for the
financial
year
============== ================
Loss per
ordinary
share
Basic and 3 (10.86p) (7.5p)
diluted
============== ================
All amounts relate to continuing activities.
SURFACE TRANSFORMS PLC
BALANCE SHEET
AS AT 31 MAY 2003
Note 2003 2002
# # # #
Fixed
assets
Intangible 10,758 12,976
assets
Tangible 97,893 130,376
assets
-------------- ------------------
108,651 143,352
Current
assets
Stocks 70,068 338,171
Debtors 294,387 76,834
Cash at bank 6 178,175 139,595
and in hand
---------------- ---------------
542,630 554,600
Creditors:
amounts
falling
due within (77,608) (118,442)
one year
---------------- ---------------
Net current 465,022 436,158
assets
-------------- ------------------
Net assets 573,673 579,510
============== ==================
Capital and
reserves
Called up 93,799 79,156
share
capital
Share premium 1,967,775 1,023,873
account
Other 520,399 520,399
reserves
Profit and (2,008,300) (1,043,918)
loss
account
-------------- ------------------
Equity 573,673 579,510
shareholder's
funds
============== ==================
SURFACE TRANSFORMS PLC
Reconciliation of movements in shareholders' funds
2003 2002
# #
Loss for the financial year (964,382) (561,065)
New share capital subscribed
(net of issue costs) 958,545 592,852
------------------ ------------------
Net (reduction in)/addition to (5,837) 31,787
shareholders' funds
Opening shareholders' funds 579,510 547,723
------------------ ------------------
Closing shareholders' funds 573,673 579,510
================== ==================
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MAY 2003
Note 2003 2002
# #
Net cash outflow from operating 5 (917,597) (768,880)
activities
Return on investments and servicing 6,677 7,968
of finance
Taxation - -
Capital expenditure (9,045) (52,737)
----------------- -----------------
Cash outflow before financing (919,965) (813,649)
Financing 958,545 592,852
----------------- -----------------
Increase/(decrease) in cash in the 38,580 (220,797)
period
================= =================
Notes
1. Nature of Financial Information
The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 May 2003 or 2002. The financial
information for 2002 is derived from the statutory accounts for 2002 which have
been delivered to the registrar of companies. The auditors have reported on the
2002 accounts: their report was unqualified and did not contain statements under
section 237(2) or (3) of the Companies Act 1985. The statutory accounts for 2003
will be finalised on the basis of the financial information presented by the
directors in this preliminary announcement and will be delivered to the
registrar of companies following the company's annual general meeting.
2. Basis of preparation
The accounting policies have been applied consistently in dealing with items
which are considered material in relation to the company's financial statements
except as noted below. The company has adopted FRS 18 'Accounting policies' and
FRS 19 'Deferred tax' in these financial statements.
The financial statements have been prepared in accordance with applicable
accounting standards and in accordance with the historical cost convention.
Change in format of profit and loss account
In accordance with FRS 18 ' Accounting policies' the directors decided to change
the format of the profit and loss account to separately highlight development
expenses. The directors believe this provides a better understanding of the
company's activities in the year. Cost of sales, administrative expenses and
development expenses have all been reclassified. The change in format has
resulted in no change to operating loss in either year.
3. Loss per share
The calculation of basic loss per ordinary share is based on the loss for the
financial year divided by the weighted average number of shares in issue during
the year.
Losses and number of shares used in the calculations of loss per ordinary share
are set out below:
Basic
2003 2002
# #
Loss after tax (964,382) (561,065)
Weighted average number of shares 8,882,861 7,515,251
Loss per share 10.86p 7.5p
================ ================
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 warrants and
options would have the effect of reducing the loss per ordinary share and is
therefore not dilutative under the terms of FRS14.
4. Exceptional items
Following Formula 1 regulatory changes introduced during the year which
restricted the supply of products to that market, the directors decided to
terminate all ongoing Formula 1 development. This resulted in a Formula 1 stock
write down of #293,048.
5. Reconciliation of operating loss to net cash flow from operating
activities
2003 2002
# #
Operating loss (1,129,909) (569,033)
Depreciation charge 41,628 38,886
Amortisation charge 2,218 2,224
Profit on sale of fixed assets (100) -
Decrease/(increase) in stocks 268,103 (300,269)
Increase in debtors (58,703) (3,724)
(Decrease)/increase in creditors (40,834) 63,036
------------------- -------------------
Net cash outflow from operating (917,597) (768,880)
activities
=================== ===================
6. Reconciliation of net cash flow to movement in net funds
2003 2002
# #
Increase/(decrease) in cash in the 38,580 (220,797)
period
------------------ ------------------
Change in net funds resulting from cash 38,580 (220,797)
flows
------------------ ------------------
Movement in net funds in the period 38,580 (220,797)
Net funds at the start of the period 139,595 360,392
------------------ ------------------
Net funds at the end of the period 178,175 139,595
================== ==================
This information is provided by RNS
The company news service from the London Stock Exchange
END
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