SURFACE TRANSFORMS PLC — Earnings Release 2015

Feb 16, 2015

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RNS Number : 9202E

Surface Transforms PLC

16 February 2015

16 February 2015

Surface Transforms Plc

("Surface Transforms" or the "Company")

Half-year financial results for the six months ended 30 November 2014

Surface Transforms plc (AIM:SCE), manufacturers of carbon fibre reinforced ceramic (CFRC) materials, announces its half-year financial results for the six months ended 30 November 2014.

Financial highlights:

·              Turnover increased to £623k (2013: £558k) although when normalised to take account of non-recurring revenue, continuing turnover increased 54% to £623k (2013: £403k)

·              Loss before tax increased to £471k (2013: £372k)

·              Loss after tax increased to £254k (2013: £205k)

·              EBITDA loss increased to £165k (2013: loss £131k)

·              Cash at 30 November 2014 was £132k  (2013: £375k)

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, Michael Reynolds (Corporate Finance)
David Banks (Corporate Broking)

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

CHAIRMAN'S STATEMENT

It is encouraging to report continuing progress at Surface Transforms in line with guidance issued at the time of our November 2014 fundraising.

The Company continues to pursue the twin track approach of achieving break even through both retrofit sales and "near Original Equipment Manufacturer (OEM)" sales in parallel with winning "game-changing" OEM opportunities in the automotive and aerospace markets.

In respect to achieving our break even objective, the comparison between the two periods is impacted by the inclusion in HY13 of a £154k non-recurring technology transfer payment. Excluding this contribution, the growth in underlying sales - race products to a major European brake manufacturer and retrofit road car sales - between an unchanged £623k for HY14 and a revised £403k for HY13 demonstrates underlying growth of 54%.  Gross profit in HY14 of £293k represents an improvement of 30% on the normalised HY13 gross profit of £226k.

The increase in research costs is largely due to engineering activities associated with the commissioning of the new CVI plant. As previously announced, we intend to use part of the proceeds raised in the November 2014 fund raising, to recruit additional engineers to support ongoing OEM programmes.  Consequently, these costs albeit for different reasons, are expected to increase in the future and we have budgeted for this accordingly.

The significant improvement in retrofit sales reflects the actions taken last year (and reported in our 2013 interim statement) of both selling directly to end users - the Company has now appointed its own German based sales executive - and appointing "direct" distributors who are nearer to our ultimate customers (e.g. motorsport support companies and track day management companies). The effects of these have been positive and in line with our expectations - both increasing end user price competitiveness and improving market intelligence, resulting in increased sales.

In parallel, but arguably of greater importance, the Company has made excellent progress on its "game changing" OEM opportunities. In the period, the Company announced the award of a significant pre-production contract with a tier one aerospace supplier and can report that the activities required to complete aircraft certification are on target. We can also report that, over the past few months, the customer has accelerated testing on the second phase of this aerospace relationship - the smaller aircraft segment, being of potentially greater commercial significance to the customer.

In the automotive market, the Company is making progress in both widening the number of active programmes in testing and on the actions required to secure OEM contracts on these programmes - cost reduction, quality conformance and supply security.

The Company still expects to make one or more significant OEM announcements in the near future.

In respect of the three strategic objectives of cost reduction, quality conformance and supply security, the Company announced in November its plan to build a new plant and the raising of up to £1.5 million to finance this and other projects.  On behalf of the Company, your Board would like to thank both our new and existing shareholders for their support.  Whilst the total funds raised were a little shy of what we had hoped, they are sufficient to commence the various programmes and we remain in discussions with certain potential investors to fund the shortfall.

FINANCIAL REVIEW

In the 6 months to 30 November 2014, revenues were £632k (2013: £558k) which was 12% higher than last year.

Losses after taxation increased to £254k (2013: £205k) and EBITDA loss increased to £165k (2013: loss £131k).

The Company had a cash balance of £132k (2013: £375k). This cash balance compared with the May 2014 cash balance of £151k reflects the unwinding of a particular debtor balance and receipt of the R&D tax credit.

Loss per share was 0.62p (2013: 0.53p)

OUTLOOK

Taking a longer term view, the Board is most encouraged by progress on the "game-changer" OEM projects and remains hopeful of being able to publicly announce further tangible progress in 2015.

Discussions continue with potential investors on the further investment needed to fully fund the building of the additional plant.

David Bundred

Chairman

13th February 2015

STATEMENT OF COMPRHENSIVE INCOME

for THE six months ended 30 November 2014 

			Six months ended 30-Nov 2014		Six months ended 30-Nov 2013		Year ended 31-May 2014
			(unaudited)		(unaudited)		(audited)
	Note		£'000's		£'000's		£'000's
Revenue			623		558		1,273
Cost of sales			(330)		(178)		(557)
Gross profit			293		380		716
Administrative expenses:
Before research costs			(325)		(400)		(613)
Research costs			(427)		(394)		(955)
Total administrative expenses			(752)		(794)		(1,568)
Other operating income			9		54		66
Operating loss			(450)		(360)		(786)
Financial expenses			(21)		(13)		(56)
Loss before tax			(471)		(373)		(842)
Taxation	2		217		168		168
Loss for the period			(254)		(205)		(674)
Total comprehensive income for the period			(254)		(205)		(674)
Loss per share
Basic and diluted	3		(0.62p)		(0.53p)		(1.65p)

STATEMENT OF FINANCIAL POSITION

AS AT 30 NOVEMBER 2014

	As at		As at		As at
	30-Nov		30-Nov		31-May
2014 (unaudited)		2013 (unaudited)		2014 (audited)
	£'000's		£'000's		£'000's
Non-current assets
Property, plant and equipment	538		645		586
Total non-current assets	538		645		586
Current assets
Inventories	278		381		271
Trade and other receivables	312		384		454
Cash and cash equivalents	132		375		151
Total current assets	722		1,140		876
Total assets	1,260		1,785		1,462
Current liabilities
Other interest bearing loans and borrowings	(5)		(209)		(9)
Trade and other payables	(441)		(244)		(395)
Total current liabilities	(446)		(453)		(404)
Non-current liabilities
Other interest bearing loans and borrowings	(418)		(232)		(418)
Total liabilities	(864)		(685)		(822)
Net assets	396		1,100		640
Equity
Share capital	423		423		423
Share premium account	7,995		7,995		7,995
Other reserves	464		464		464
Retained deficit	(8,486)		(7,782)		(8,242)
Total equity attributable to shareholders of the Company	396		1,100		640

STATEMENT OF Cash flowS

for THE six months ended 30 November 2014

	Six Months Ended		Six Months Ended		Year ended
	30-Nov		30-Nov		31-May
	2014 (unaudited)		2013 (unaudited)		2014 (audited)
	£'000's		£'000's		£'000's
Cash flows from operating activities
Loss for the period	(254)		(205)		(674)
Adjusted for:
Depreciation charge Fixed asset disposal Equity settled share-based payment expenses Financial expenses Taxation	58 - 10 21 (217)		41 - 9 13 (168)		91 10 18 56 (168)
	(382)		(310)		(667)
Changes in working capital
(Increase)/decrease in inventories	(7)		(24)		86
Decrease/(increase)in trade and other receivables	142		(58)		(128)
(Decrease)/increase in trade and other payables	46		(55)		96
	(201)		(447)		(613)
Finance expenses	(21)		(13)		(56)
Taxation received	217		168		168
Net cash used in operating activities	(5)		(292)		(501)
Cash flows from investing activities
Acquisition of property, plant and equipment	(10)		(21)		(63)
Proceeds from sale of property, plant & equipment	-		-		41
Net cash used in investing activities	(10)		(21)		(22)
Cash flows from financing activities
Proceeds from issue of share capital	-		327		327
Proceeds from new borrowings	-		-		400
Payment of finance lease liabilities	-		-		(6)
Payment of borrowings	(4)		(96)		(504)
Net cash (used)in/from financing activities	(4)		231		217
Net decrease in cash and cash equivalents	(19)		(82)		(306)
Cash and cash equivalents at the beginning of the period	151		457		457
Cash and cash equivalents at the end of the period	132		375		151

CONDENSED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS TO 30 NOVEMBER 2014

	Share Capital		Share premium account		Capital reserve	Retained deficit			Total
For the six months to 30 November 2014
	£'000's		£'000's		£'000's	£'000's			£'000's
Balance at 31 May 2014	423		7,995		464	(8,242)			640
Loss for the period	-		-		-	(254)			(254)
Total comprehensive income for the period	-		-		-	(254)			(254)
Transactions with owners, recorded directly to equity
Equity settled share based payments	-		-		-	10			10
Total contributions by and distributions to the owners	-		-		-	10			10
Balance at 30 November 2014	423		7,995		464	(8,486)			396
	Share Capital		Share premium account		Capital reserve	Retained deficit			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	-		-		-	(205)			(205)
Transactions with owners, recorded directly to equity
Shares issued in the period	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 deficit			Total
For the year to 31 May 2014
	£'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 year	-		-		-	(674)			(674)
Total comprehensive income for the year	-		-		-	(674)			(674)
Transactions with owners, recorded directly to equity
Shares issued in the year	39		288		-	-			327
Equity settled share based payments	-		-		-	18			18
Total contributions by and distributions to the owners	39		288		-	18			345
Balance at 31 May 2014	423		7,995		464	(8,242)			640

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 13th February 2015.

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 2014 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 2014.

The comparative figures for the financial year ended 31 May 2014 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 2014.

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 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 judgments, 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 judgments 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 2014.

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 £254k 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. 

2          Taxation

Analysis of credit in the period

	Six months ended	Six months ended	Year ended ended
	30-Nov	30-Nov	31-May
	2014	2013	2014
	£'000's (unaudited)	£'000's (unaudited)	£'000's (audited)
UK Corporation tax
Current tax on income for the period	-	-	-
Research and development tax repayment	217	168	168
	217	168	168

The effective rate of tax for the period/year is lower than the standard rate of corporation tax in the UK of 21.33 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
2014 (unaudited)	2013 (unaudited)	2014 (audited)
	Pence	Pence	Pence
Loss per share:
Basic and diluted	(0.62)	(0.53)	(1.65)

Loss per ordinary share is based on the Company's loss for the financial period of £254k (30 November 2013: £205k; 31 May 2014: £674k). The weighted average number of shares used in the basic calculation is 40,730,707 (30 November 2013: 38,553,764; 31 May 2014: 40,730,707). 

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 focused 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 ceramic products and the development of technologies associated with this.

	Total
Period ended 30 November 2014	£'000
Segment revenues	623
Operating expenses	(1,073)
Results from operating activities	(450)
Net finance costs	(21)
Loss before tax	(471)
Assets
Segment assets	1,260
Segment liabilities	(864)
	Total
Period ended 30 November 2013	£'000
Segment revenues	558
Operating expenses	(918)
Results from operating activities	(360)
Net finance costs	(13)
Loss before tax	(373)
Assets
Segment assets	1,785
Segment assets	(685)

5.         Dividends

The Directors are not proposing the payment of a dividend in respect of the six months ended 30 November 2014.

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

END

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