SURFACE TRANSFORMS PLC — Earnings Release 2014

Feb 3, 2014

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RNS Number : 0713Z

Surface Transforms PLC

03 February 2014

3 February 2014

Surface Transforms Plc

("Surface Transforms" or "the Company")

Half-year financial results for the six months ended 30 November 2013

Surface Transforms plc, manufacturers of carbon fibre reinforced ceramic (CFRC) materials, announces its half-year financial results for the six months ended 30 November 2013.

Financial and business highlights:

·              Turnover increased 38% to £558k (2012: £405k)

·              Loss before tax reduced to £373k (2012: £429k)

·              Loss after tax reduced to £205k (2012: £298k)

·              EBITDA loss reduced to £131k (2012: loss £192k)

·              Cash at 30 November 2013 was £375k  (2012: £391k)

For enquiries, please contact:

Surface Transforms plc
Kevin Johnson, CEO	0151 356 2141
David Bundred, Chairman	07785 388 848
Cantor Fitzgerald Europe (Nomad & Broker)	020 7894 7000
David Foreman, Rick Thompson (Corporate Finance)
Paul Jewell (Corporate Broking)

For further Company details visit www.surface-transforms.com.

CHAIRMAN'S STATEMENT

It is encouraging to report continuing progress at Surface Transforms plc ("Surface Transforms" or the "Company").

The Company continues to pursue the twin track approach of achieving short term cash break even through both retrofit sales and income from technology transfer in parallel with winning one or more "game-changing" OEM opportunities in the automotive and/or aerospace markets.

In respect to the short term break even objective, the sales increase and loss reduction in the six months ended 30 November 2013 have been materially assisted by the income from the technology transfer agreement to a major global clutch manufacturer.

Sales to our other markets have included strong orders with the major European brake manufacture customer- who has now recovered from the supply chain disruption experienced in 2013. However this good progress was somewhat offset by a disappointing first half performance on road car retrofit sales by both our German and UK distributors -  whilst our German distributor is now out of administration, sales targets are not yet being achieved. This general road car distributor underperformance has led to an evolution of the Company's distribution strategy whereby we are now both selling directly to end users (the Company has now appointed its own German based sales executive) and we have appointed "direct" distributors who are nearer to the ultimate customers e.g. motorsport support companies and track day management companies. This evolution is both increasing end user price competitiveness and improving market intelligence and we are already receiving orders from this shorter channel to market. Finally, in support of growing sales in this sector, the Company continues to add to the range with Nissan GTR, Aston Martin, Porsche and Ferrari models now in the product range.

In parallel, but arguably of greater importance, the Company continues to progress its "game changing" OEM opportunities. The Company is very close to completing testing of products with a tier one aerospace supplier and is hopeful of achieving a commercial breakthrough on this project in 2014. In the automotive market the Company continues to work with both an international brake system supplier and a UK based automotive company; it is also encouraging to report that our direct automotive OEM discussions now include a continental automotive company, a new project for the Company.

The activities on cost reduction and quality improvement are progressing in line with broker expectations.

FINANCIAL REVIEW

In the 6 months to 30 November 2013, revenues were £558k (2012: £405k) which was 38% higher than last year.

Losses after taxation before exceptional restructuring costs were slightly lower at £205k (2012: £298k) and EBITDA loss improved to £131k (2012: loss £192k).

The Company had a cash balance of £375k (2012: £391k)

Loss per share was 0.53p (2012: 1.06p)

The Company issued further equity during the period, successfully raising £327k.

OUTLOOK

Surface Transforms is currently trading broadly in line with broker expectations, year-end sales may be slightly lower than previously forecast but profit and cash are expected to be largely on target. Any sales variance will be in road car retrofit sales; whilst we expect the changes to channel and end user pricing to further increase retrofit sales, orders in this segment are short lead times and the buying season is only now beginning.

Taking a longer view the Board is encouraged by progress on the OEM projects and remain hopeful of being able to publically announce tangible progress in 2014.

David Bundred

Chairman

3rd February 2014

SURFACE TRANSFORMS PLC

STATEMENT OF COMPRHENSIVE INCOME

for THE six months ended 30 November 2013 

			Six months ended 30-Nov 2013		Six months ended 30-Nov 2012		Year ended 31-May 2013
			(unaudited)		(unaudited)		(audited)
	Note		£'000's		£'000's		£'000's
Revenue			558		405		1,059
Cost of sales			(178)		(165)		(275)
Gross profit			380		240		784
Administrative expenses:
Before research costs			(400)		(353)		(601)
Research costs			(394)		(379)		(895)
Total administrative expenses			(794)		(732)		(1,496)
Other operating income			54		100		138
Operating loss			(360)		(392)		(574)
Financial income			-		1		2
Financial expenses			(13)		(38)		(68)
Loss before tax			(373)		(429)		(640)
Taxation	2		168		131		132
Loss for the period			(205)		(298)		(508)
Exceptional items			-		(44)		(72)
Total comprehensive loss for the period			(205)		(342)		(580)
Loss per ordinary share
Basic and diluted	3		(0.53p)		(1.06p)		(1.71p)

SURFACE TRANSFORMS PLC

STATEMENT OF FINANCIAL POSITION

AS AT 30 NOVEMBER 2013

	As at		As at		As at
	30-Nov		30-Nov		31-May
2013 (unaudited)		2012 (unaudited)		2013 (audited)
	£'000's		£'000's		£'000's
Non-current assets
Property, plant and equipment	645		523		665
Total non-current assets	645		523		665
Current assets
Inventories	381		411		357
Trade and other receivables	384		296		326
Cash and cash equivalents	375		391		457
Total current assets	1,140		1,098		1,140
Total assets	1,785		1,621		1,805
Current liabilities
Other interest bearing loans and borrowings	(209)		(183)		(198)
Trade and other payables	(244)		(234)		(299)
Total current liabilities	(453)		(417)		(497)
Non-current Liabilities
Other interest bearing loans and borrowings	(232)		(447)		(339)
Total liabilities	(685)		(864)		(836)
Net assets	1,100		757		969
Equity
Share capital	423		321		384
Share premium account	7,995		7,330		7,707
Other reserves	464		464		464
Retained deficit	(7,782)		(7,358)		(7,586)
Total equity attributable to equity shareholders of the Company	1,100		757		969

SURFACE TRANSFORMS PLC

STATEMENT OF Cash flowS

for THE six months ended 30 November 2013

	Six Months Ended		Six Months Ended		Year ended
	30-Nov		30-Nov		31-May
	2013 (unaudited)		2012 (unaudited)		2013 (audited)
	£'000's		£'000's		£'000's
Cash flows from operating activities
Loss for the period	(205)		(342)		(580)
Adjusted for:
Depreciation charge Fixed Asset Disposal	41 -		40 -		83 -
Equity settled share-based payment expenses	9		18		28
Financial income	-		(1)		(2)
Financial expenses	13		38		68
Taxation	(168)		(131)		(132)
	(310)		(378)		(535)
Changes in working capital
(Increase)/decrease in inventories	(24)		(7)		46
(Increase)/decrease in trade and other receivables	(58)		61		31
Decrease in trade and other payables	(55)		(64)		-
	(447)		(388)		(458)
Finance income received	-		1		2
Finance expenses paid	(13)		(38)		(68)
Taxation received	168		131		132
Net cash used in operating activities	(292)		(294)		(392)
Cash flows from investing activities
Acquisition of property, plant and equipment	(21)		(275)		(460)
Net cash used in investing activities	(21)		(275)		(460)
Cash flows from financing activities
Proceeds from issue of share capital	327		27		468
Proceeds from new borrowings	-		437		437
Payment of borrowings	(96)		(51)		(143)
Net cash from financing activities	231		413		762
Net decrease in cash and cash equivalents	(82)		(156)		(90)
Cash and cash equivalents at the beginning of the period	457		547		547
Cash and cash equivalents at the end of the period	375		391		457

SURFACE TRANSFORMS PLC

STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS TO 30 NOVEMBER 2013

	Share Capital		Share premium account		Capital reserve	Retained earnings			Total
For the six months to 30 November 2013
	£'000's		£'000's		£'000's	£'000's			£'000's
Balance at 31 May 2013	384		7,707		464	(7,586)			969
Loss for the period	-		-		-	(205)			(205)
Total comprehensive income for the period	384		7,707		464	(7,791)			764
Transactions with owners, recorded directly to equity Shares issues in year	39		288		-	-			327
Equity settled share based payments	-		-		-	9			9
Total contributions by and distributions to the owners	39		288		-	9			336
Balance at 30 November 2013	423		7,995		464	(7,782)			1,100
	Share Capital		Share premium account		Capital reserve	Retained earnings			Total
For the six months to 30 November 2012
	£'000's		£'000's		£'000's	£'000's			£'000's
Balance at 31 May 2012	319		7,305		464	(7,034)			1,054
Loss for the period	-		-		-	(342)			(342)
Total comprehensive income for the period	319		7,305		464	(7,376)			712
Transactions with owners, recorded directly to equity
Shares issued in the period	2		25		-	-			27
Equity settled share based payments	-		-		-	18			18
Total contributions by and distributions to the owners	2		25		-	18			45
Balance at 30 November 2012	321		7,330		464	(7,358)			757
	Share Capital		Share premium account		Capital reserve	Retained earnings			Total
For the year to 31 May 2013
	£'000's		£'000's		£'000's	£'000's			£'000's
Balance at 31 May 2012	319		7,305		464	(7,034)			1,054
Loss for the year	-		-		-	(580)			(580)
Total comprehensive income for the year	319		7,305		464	(7,614)			474
Transactions with owners, recorded directly to equity
Shares issued in the year	65		465		-	-			530
Costs of issue written off to share premium	-		(63)		-	-			(63)
Equity settled share based payments	-		-		-	28			28
Total contributions by and distributions to the owners	65		402		-	28			495
Balance at 31 May 2013	384		7,707		464	(7,586)			969

SURFACE TRANSFORMS PLC

NOTES

1.         Accounting policies

The interim financial statements are the responsibility of the Directors and were authorised and approved by the Board of Directors for issuance on 3rd February 2014.

Basis of preparation

In the condensed consolidated half-yearly financial statements, the term 'Company' refers to Surface Transforms plc, a Company incorporated in the United Kingdom.  These condensed consolidated half-yearly financial statements comprise the Company and its subsidiaries as detailed in note 6 (together referred to as 'the Group' or 'Surface Transforms').  The financial statements of the Group for the six months ended 30 November 2013 are available from the Company's website www.surface-transforms.com.

These 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 2013.

The comparative figures for the financial year ended 31 May 2013 are not the Company's statutory accounts for that financial year. Those accounts 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 498 (2) or (3) of the Companies Act 2006.

The accounting policies and presentation used in the preparation of these condensed consolidated half-yearly financial statements are consistent with those used in the preparation of the Company's published financial statements for the year ended 31 May 2013.

Segmental reporting

IFRS 8 "Operating Segments" requires that the segments should be reported on the same basis as the internal reporting information that is provided to, and regularly reviewed by, the chief operating decision-maker, whom the Group has identified as the Managing Director.

The Board has reviewed the requirements of IFRS 8, including consideration of what results and information the Managing Director reviews regularly to assess performance and allocate resources, and concluded that, as under IAS 14, all revenue falls under a single business segment.

The Directors consider that the Group does not have separate divisional segments as defined under IFRS 8. The CEO assesses the commercial performance of the business based upon consolidated revenues, margins, operating costs and assets are reviewed at a consolidated level.

Estimates

The preparation of half-yearly financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these condensed consolidated half-yearly financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 May 2013.

Seasonality of operations

The Directors anticipate that the business will return to its normal historical trend with activity in the second half of this financial year being considerably higher than that of the first half. This trend is due to a number of key contracts normally maturing in the second half of the financial year.

Going concern

The financial statements have been prepared on a going concern basis which the Directors believe to be appropriate.  Whilst the Company incurred a net loss of £205k during the period, the Directors are satisfied that sufficient cash is available to meet the Company's liabilities as and when 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

	Six months ended	Six months ended	Year ended ended
	30-Nov	30-Nov	31-May
	2013	2012	2013
	£'000's	£'000's	£'000's
UK Corporation tax
Current tax on income for the period	-	-	-
Research and development tax repayment	168	131	132
	168	131	132

The effective rate of tax for the period/year is lower than the standard rate of corporation tax in the UK of 22.67 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

	Six months ended	Six months ended	Year ended
	30-Nov	30-Nov	31-May
2013	2012	2013
	Pence	Pence	Pence
Loss per ordinary share:
Basic and diluted	(0.53)	(1.06)	(1.71)

Loss per ordinary share is based on the Company's loss for the financial period of £205k (30 November 2012: £342k; 31 May 2013: £580k). The weighted average number of shares used in the basic calculation is 38,553,764 (30 November 2012: 32,141,236; 31 May 2013: 33,915,972). 

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.         Segment reporting

Due to the start up nature of the business the Company is currently focussed on building revenue streams from a variety of markets.  As there is only one manufacturing facility and this has capacity above and beyond the current levels of trade there is no requirement to allocate resources to or discriminate between specific markets or products.  As a result the Company's chief operating decision maker, the CEO, reviews performance information for the Company as a whole and does not allocate resources based on products or markets.   In addition, all products manufactured by the Company are produced using similar processes.

Having considered this information in conjunction with the requirements of IFRS 8, as at the reporting date the board of directors have concluded that the Company has only one reportable segment, that being the manufacture and sale of carbon fibre materials and the development of technologies associated with this..

	Total
Period ended 30 November 2013	£
Segment revenues	558
Operating expenses	(918)
Results from operating activities	(360)
Net finance costs	(13)
Loss before tax	(373)
Assets
Segment assets	1,100
	Total
Period ended 30 November 2012	£'000's
Segment revenues	405
Operating expenses	(797)
Results from operating activities	(392)
Net finance costs	(37)
Loss before tax	(429)
Assets
Segment assets	757

5.         Dividends

The Directors are not proposing the payment of a dividend in respect of the six months ended 30 November 2013.

6.         Subsidiary companies

The following subsidiary companies were incorporated by Surface Transforms Plc on 8 May 2009:

-           ST Aerospace Limited

-           ST Automotive Ceramic Limited

-           ST Defence Limited

-           ST Racing Limited

None of these companies have traded since their incorporation.

This information is provided by RNS

The company news service from the London Stock Exchange

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