TIDMSCE
RNS Number : 5787Q
Surface Transforms PLC
22 June 2020
Surface Transforms plc
("Surface Transforms" or the "Company)
Preliminary Results and
Notice of Annual General Meeting
Surface Transforms (AIM:SCE) is pleased to announce its
preliminary results for the period ended 31 December 2019. The
Company's Annual Report and Accounts for the period ended 31
December 2019, together with a notice convening the Company's
Annual General Meeting at Image Business Park, Acornfield Road,
Knowsley Industrial Estate, Liverpool, L33 7UF on Friday 24 July
2020 at 9.30am will be posted to shareholders in due course. Copies
of the Annual Report and Accounts will be available on the
Company's website www.surfacetransforms.com as from this posting
date.
Highlights
Financial highlights
-- Revenues increased GBP936k to GBP1,451k (Seven months to 31 December 2018: GBP515k)
-- Gross margin reduced to 59.8% (Seven months to 31 December 2018: 63%)
-- Research costs increased to GBP1,502k (Seven months to 31
December 2018: GBP1,110k) which has been partially offset by
accrued R&D tax credit of GBP443k (Seven months to 31 December
2018: GBPnil)
-- Other administrative expenses increased by GBP91k to
GBP1,063k (Seven months to 31 December 2018: GBP972k)
-- Loss after taxation of GBP1,317k (Seven months to 31 December 2018: GBP1,573k)
-- Loss per share of 0.97p (Seven months to 31 December 2018: 1.29p)
-- Cash used in operating activities decreased by GBP1,284k to
GBP684k (Seven months to 31 December 2018: GBP1,968k)
-- Cash at 31 December 2019 was GBP770k (31 December 2018: GBP319k)
-- Capital expenditure in the period was GBP621k (Seven months to 31 December 2018: GBP143k)
-- Tax credits of GBP523k received in the period against an accrual of GBP400k
-- Post balance sheet date, the Company successfully raised
GBP2.25m after fees in a significantly over-subscribed placing and
open offer.
Customer and Operational highlights
-- Secured an EUR11.8m contract over seven years from major
German automotive OEM 5 with start of production ("SOP") in October
2021. Discussions continue regarding follow on business
-- Further SOP delays of contracts with British automotive customer OEM 6
-- Secured and delivered a GBP400k contract with British OEM 1.
Discussions continue regarding follow on business
-- Completed delivery of all machines for OEM Production Cell
One and demonstrated individual furnace functional capability
-- Post balance sheet date, won a contract valued in excess of
GBP5m to supply brake discs on the new Koenigsegg Gemera
-- Received full regulatory approval from the Environmental Agency for the Knowsley site
Chairman's Statement
This seven month report is for the transitional period from the
old reporting date of 31 May 2019 to the new date of 31 December
2019. It was a period of considerable progress in the fortunes of
the Company including significant break-through contract awards,
the delivery and installation of the key elements of the new OEM
Production Cell One and improvement in current trading
performance.
The period since this reporting period end has been dominated by
the huge distraction of the COVID-19 pandemic but as described
below the Company has taken both operational and financial actions
to mitigate the impact.
The Company is still on progress to reach positive Adjusted
EBITDA in 2021 and profit before tax in 2022.
COVID-19
The Company has been able to maintain operations during the
current crisis and, due to the quick response of the entire team,
have managed to keep the factory operational throughout the
lockdown phase of the crisis. No orders with OEM's or near OEM's
customers have been lost, and indeed in this period the Company
announced a contract in excess of GBP5m from Koenigsegg for their
new Gemera car. However there have been delays to both some start
of production (SOP) dates and the initial production ramp up rates.
Additionally, there has been some slowing of retrofit sales but
this is expected to be a temporary position that will recover as
lockdowns across the world are slowly lifted.
The trading impact of the pandemic was fully described in the
background provided to investors at the time of the April 2020
COVID-19 statements and fund raising and has not changed since that
time.
Against this background the Company has, after the period end,
raised GBP2.25m net after fees through a significantly over
subscribed placing and open offer which has placed the Company in a
secure position to mitigate the risks that the COVID-19 pandemic
could create and ensures that it can maintain the development
activities to support current and potential new OEM contracts.
The Company did apply for a government backed CBILS loan but
understands that historic trading performance renders the Company
ineligible. This was the management assumption at the time of the
equity fund raise and has no impact on the internal projections and
previously provided guidance.
Progress with potential OEM Customers
The Company continues to test products with customers as
described in previous announcements and still expects to make
further contract announcements during 2020:
OEM 5 : In the period the Company was notified of its selection
as a tier one supplier of a carbon ceramic disc to the major German
automotive company OEM 5. The selection is to be the sole supplier
of the brake disc option on one axle of a new model. Lifetime
revenue on this car is estimated to be EUR11.8m commencing late
2021. Annual revenue is estimated to be EUR2.0m per year before
tapering off during 2026.
In addition, whilst this selection is the first with German OEM
5 the commercial understanding embraces the opportunity to be
selected for further multiple platforms in the customer's portfolio
over time - pricing has been agreed providing a link between
increasing volumes and decreasing unit prices. These potential
awards could generate revenues of many times the value of this
first contract.
The customer is now completing the system integration tasks
required to bring the car into production. This work is proceeding
to plan.
OEM 6 : The customer has announced changes to SOP on both
contracts previously won. On the first contract we won with them in
2017 the customer had expected SOP in the summer of 2020 but
recently announced a further COVID-19 related slippage to Q4 of
2020; we now expect the contract to start in that period, to run
through 2021 and conclude in 2022. However this delay had been
anticipated by the Company in its COVID-19 statement and is thus
already reflected in the Company's previously announced assumptions
and revenue guidance.
Similarly, the customer has announced SOP delays on the second
car on which Surface Transforms is a nominated supplier. Again, the
Company had previously included a general overall delay contingency
to provide against any such risk and now expects SOP on this
contract in early 2023 with no impact on overall guidance
OEM 1 : In the period the Company both received and delivered a
GBP400k order for carbon ceramic discs on a track car to a major
high performance British automotive company.
The Company is in discussions with the customer on further
opportunities.
OEM 3 : Work continues on the product enhancements to meet the
customer's unique environmental test. Progress has been good with
particular focus on ensuring that a capable production process
matches the development activities. The Company is now in
discussions on whether this enhanced product is sufficiently
advanced for approval by OEM 3 for nomination on particular future
programmes, in parallel with continuing to develop further process
improvement to widen the potential for nominations. Albeit the
customer discussions have been delayed by the COVID-19 lockdown of
the customer's engineers.
Koenigsegg : Post balance sheet date the Company announced that
it has been selected as the tier one, sole supplier of carbon
ceramic brake discs on the recently launched Koenigsegg Gemera car.
The lifetime value of the contract is in excess of GBP5m with a
start of production in mid 2022 completing in mid 2027. Revenue is
expected to be generated broadly evenly over the contract with
approximately GBP1m per year being recognised in each of the four
mid-programme years commencing 2023.
Other OEMs . The Company continues constructive discussions with
a number of other OEMs, some of whom are now testing our product
for the first time.
Knowsley Facility
OEM Production Cell One : All the new furnaces have now
demonstrated functional capability and, indeed, some are being used
to contribute to Small Volume Cell production output, thereby
taking advantage of superior technology and lower production costs.
The key task over the next few months is to demonstrate full system
integration of all the machines in the cell.
Environmental permits : The Company has now received full
regulatory approval from the Environmental Agency for all
technologies, including furnaces, on the Knowsley site.
2019 production surge : The success in delivering the GBP400k
order for OEM 1 in a very limited period was a significant
achievement by the, relatively new, operations team. Apart from the
obvious customer relationship and financial benefits arising from
this order, the "production surge" was a very valuable learning
experience for us in respect to both the Company's internal
processes and supply chain. Where weaknesses were exposed, remedial
actions have either been addressed or are in advanced stages of
consideration.
Cost reductions : The Company continues to see continuous
reduction in manufacturing cost as a crucial key ingredient of
future success in the automotive industry. When OEM Production Cell
One goes live in 2020, the Company will have achieved its original
plan to halve production costs. The Company will not rest on this
milestone with further cost reduction initiatives under active
consideration.
Summary
Surface Transforms continues its journey from a development
company to a mainstream volume automotive supplier with a site
capable of revenues of GBP50m per year in a market that could
ultimately reach GBP2 billion per annum.
In 2020 we expect to build on this foundation by winning further
contracts, completing the system integration of OEM Production Cell
One and begin delivering both production and development parts on
the new contracts.
Whilst COVID-19 will clearly impact 2020, the Company expects
the impact thereafter to be minimal. The Board maintains previous
guidance that it will reach positive Adjusted EBITDA in 2021 and
profits before tax in 2022.
Finally, may I conclude by recording the Board's appreciation of
the outstanding contribution by all members of staff. Thank
You!
David Bundred
Chairman
19 June 2020
Strategic Report
Operational Review and principal activity
Surface Transforms is a UK based developer and manufacturer of
carbon ceramic products for the brakes market for the automotive
and aerospace markets. In these industries our products are
lightweight, extremely durable and highly refined. For the
automotive industry, they offer better heat dissipation and
material strength resulting in superior wear life, improved brake
pad wear life, reduced brake pad dust and weight reduction compared
to both our main competitor's carbon ceramic products and other
competitors iron discs.
Our strategy is to be a profitable, series production supplier
of carbon ceramic brake discs to the large volume original
equipment manufacturer (OEM) automotive market and to niche
military and small commercial aircraft brake market. To achieve
this, we work directly with OEMs and closely with Tier One
suppliers to meet the customers' requirements on product, price,
quality and security of supply.
In addition, we supply carbon ceramic brake discs to small
volume vehicle manufacturing and retrofit high performance kits for
performance cars.
The key features of our business model are as follows:
-- Engineer and manufacture carbon ceramic brake products, which
deliver high technical performance for the luxury and performance
brakes markets, which we estimate to be, ultimately, a circa GBP2
billion per annum market
-- Achieve selection and supply to OEM customers with product
for multiple models in multiyear supply agreements
-- Be a 'Quality Company' with a culture that lives and breathes
its world-class business processes and management systems. We
surpass the automotive and aerospace quality standards (IATF16949);
and thus, have the confidence that we are able to pass all customer
audits, as evidenced by recent contract wins
-- Protect the environment by minimising the environmental
impacts arising from our activities, products and services and be
committed to continuous improvement of our environmental
performance
-- Operate lean manufacturing processes, enabling the Company to
produce products that are competitively priced with good
margins
-- Support and manage our supply chain which can deliver to our
customers' requirements on product, price, quality and security of
supply
-- Utilise our manufacturing capacity capable of providing sales
of circa GBP17 million, with the capability for further expansion,
with the requisite capital expenditure, to GBP50 million sales per
annum.
Succeeding in these activities will generate highly desirable,
world leading quality products, which are price competitive and
profitable to the business.
Furthermore, our products and processes are protected by a high
level of intellectual property through a combination of patents but
mainly Company process knowhow.
Delivering our objectives:
Automotive OEMs
The automotive contracts wins achieved during the year have
provided the Company with a clear flight path to cash generation in
2021 and profitability in 2022.
The Company's activities are focused on preparing to enter
series supply for these contracts and on engineering the product
for other models with existing and new OEM customers. These
activities have continued during the COVID-19 lockdown period.
As we enter series supply with OEMs a key objective is to
deliver good supplier performance as this then leads to product
adoption on multiple model platforms which run simultaneously over
many years and provide long terms revenue visibility and strong
growth.
As part of being a good supplier we are focused on achieving
certain key operational objectives:
-- Quality - The Company continues to have excellent in-service
quality. But improving quality is a never-ending process,
particularly in the automotive industry. Our measure of improving
quality is therefore primarily focussed on reducing the internal
cost of quality; for example, reducing internal processing, which
of course also reduces cost; good progress is being made but there
is always more to do. Additionally, maintaining IATF 16949 quality
approval is another measure of success in this area. This quality
approval process requires annual re-certification audits and it is
pleasing to report that in the year the Company successfully
completed its annual recertification of both IATF16949 and ISO
9001. Additionally, the Company has been appraised successfully by
a number of OEM customers.
-- Environmental - The Company has the objective of being
responsible for the environment and improving it. We are determined
to be a good neighbour. We are an ISO14001 certified company and
have an environmental permit to operate our processes. We protect
the environment through control and monitoring of all emissions
from our processes and have set objectives to reduce our
environmental footprint. The Company also believes its product
should address environmental challenges. Our carbon ceramic brakes
have substantially longer life than existing iron brakes, reduced
carbon emissions through weight reduction and considerably less
pollution by reducing the amount of brake pad dust produced during
braking.
-- Supply chain security - as with any manufacturing process we
are only as good as our supply chain. Improvements have been made
to our supply chain in terms of both improving our existing
suppliers and adding new suppliers to our approved supplier list.
Further improvements have been identified and are being addressed
during 2020. We are pleased with progress made and will continue to
reduce our supply chain risks.
-- Manufacturing capability, capacity and cost - the Company
operates a versatile SVP (Small Volume Production) Cell to support
OEM development, Near OEMs and retrofit products. The cell is
capable of delivering approximately GBP4.5m revenue per annum.
There are additional opportunities to improve this further and the
capacity requirements are continuously assessed. The new OEM
Production Cell One is advancing well with some furnaces supporting
production in the SVP cell. The OEM Production Cell One capacity
has a phased introduction with the first GBP6m of potential revenue
available in Q3 2020, with the remaining GBP6m of revenue capacity
planned for later once operational lessons learnt have been
defined. With the introduction of OEM Production Cell One, the cost
reduction objectives set a number of years ago will be complete.
The cost reduction plans implemented across both the SVP Cell and
OEM Production Cell One have a material effect on both the
potential market and Company margins and as such plans for further
cost reduction are being developed.
Near OEMs and Retrofit
These customers make up a relatively small addressable market of
up to GBP2m per annum. Supplying these customers is delivering on
the objectives of product validation for large OEM customers as
well as establishing the Company's brand and reputation as a
high-quality manufacturer with a world-leading product. The
secondary objective (as the market is small) to generate growing
revenues is also being achieved. The risks associated with
forecasting Near OEM sales, relating to SOP (Start of Production)
and production delays remain, but are being mitigated using a
portfolio approach with the Company now having successfully
enlarged its customer base of Near OEM models.
We continue to sell retrofit kits for Porsche, Nissan GTR, Aston
Martin, Ferrari and McLaren and working with our distributors and
directly with service garages we have seen some growth during the
year.
Summary
We continue to make significant investment in engineering work
which support current contracts. Our work on quality, environment,
supply chain, capacity and cost reduction continue to achieve our
goals with further success expected in the future.
Financial Review
Revenue in the seven months to 31 December 2019 increased to
GBP1,451k (seven months to 31 December 2018*: GBP515k, 12 months to
31 May 2019: GBP1,002k) in part due to the GBP400k order from OEM
1, whilst the Company is also pleased to report increases in near
OEM sales, which we believe to be sustainable. Sales for the six
months to 30 November 2019 were GBP1,029k the high sales in
December 2019 reflecting the production catch up on near OEM and
aftermarket sales as the prior months of September to November had
been devoted to filling the OEM 1 order.
Gross profit in the seven months to 31 December 2019 increased
to GBP868k whilst for six months period to 30 November 2019,
increased to GBP630k (seven months to 31 December 2018*: GBP328k,
12 months to 31 May 2019: GBP617k). Gross profit margin was 60%
(seven months to 31 December 2018*: 63%, 12 months to 31 May 2019:
62%) due in large part to product mix but is expected to improve in
2020 as OEM Production Cell One cost reductions come on stream.
The Company has adopted IFRS 16 in the period, capitalising
operating leases. The major lease for the Company is the rent on
the Knowsley site; all other leases are minimal. The major impact
of IFRS 16 on the Company's financial statements, is on the
Statement of Financial Position creating right of use assets
totalling GBP1.5m at transition date, together with corresponding
liabilities. The impact on the Statement of Total Comprehensive
Income is to exchange a reduction in the rent (hitherto treated as
an expense) for an increase in interest and depreciation. In the
seven months to 31 December 2019 this added a net GBP30k to the
loss for the year before and after tax. These IFRS 16 adjustments
have no impact on cash. To facilitate comparison, the 2018
comparatives have been restated to reflect the impact of IFRS 16
had it been applied in that period as well.
Administrative expenses rose by GBP91k to GBP1,063k against the
seven month period (seven months to 31 December 2018*: GBP972k, 12
months to 31 May 2019: GBP1,514k) largely driven by above budget
plant repair costs of GBP66k, certification and consultancy costs
of GBP45k to achieve environmental agency approval together with
the introduction of IFRS 16. The certification costs will not
recur.
Research expenses increased to GBP1,502k (seven months to 31
December 2018*: GBP1,110k, 12 months to 31 May 2019: GBP2,039k) of
which the major elements were significant increases in the number
of prototypes being tested along with development of the furnace
process in support of cost reduction.
Cash at 31 December 2019 was GBP770k (31 December 2018*:
GBP319k, 31 May 2019: GBP1,925k), to which can be added GBP425k
customer payments received in the first week of January (31 May
2019: GBP1,925k). Both periods were impacted by a combination of
extended customer credit terms and subsequent late payment. The
significant cash inflow in December and January reflected payment
of these overdue sums and December receipt of the R&D tax
credit. Inventory reduction was less than planned in 2019 but is
expected to reduce further during 2020.
Loss per share was 0.97p (seven months to 31 December 2018*:
1.29p, 12 months to 31 May 2019: 1.68p).
Change of year end date:
These accounts are the first prepared to the new accounting
reference date. The Company took this step to align its reporting
period with that of its major OEM customer base, with the intention
that in the longer term this would reduce variability within
reporting periods. The accounts presented are therefore not
comparable to the period ended 31 May 2019 and so the Company has
decided to aid this by supplying comparatives for the seven month
period ended 31 December 2018. These comparators are unaudited
although the management estimates used in preparing them are
consistent. The next set of accounts will be for the year ending 31
December 2020.
Key performance indicators
The Directors continue to monitor the business internally with
several performance indicators: order intake, sales output,
profitability, supply chain capacity, health and safety, quality
and manufacturing cost of automotive discs. A set of business
milestones has been agreed and are discussed as part of the monthly
board meeting.
The Company produces an annual business plan and full monthly
forecasts detailing sales, profitability and cash flow to help
monitor business performance going forward.
Management meetings are held on a weekly basis, all senior
managers attend and discuss production, engineering, financial and
quality issues.
Risks and uncertainties
The principal short-term risk faced by the business is the
current COVID-19 situation and the Company has taken rapid action
to minimise these risks. In addition to the change in operational
activities and post balance sheet fund raise, the Company has taken
actions to conserve cash in the short term to maximise the
resilience of the Company through a cost reduction programme and
utilising the government furlough scheme.
There is a risk of delay on customer production due to COVID-19,
however as at the date of publication all of our customers have
returned to production and there is a focus on revenue generation
in the short term. This leads the directors to believe that this
risk is currently low unless a further shutdown should occur.
As in previous years the other major risk faced by the Company
is considered to be the speed at which our customers and potential
customers adopt the new carbon ceramic product technology. The
contract awards in the period indicate the strengthening desire
from a number of volume automotive OEMs to incorporate the
Company's product in their respective platforms. This risk is
constantly assessed by regular customer review meetings but is now
clearly much reduced.
The risks associated with bringing the newly purchased furnaces
into production are being managed by both a project team that has
the experience and skills to deliver this type of project as well
as pre-delivery testing at the supplier's premises. Regular weekly
and monthly reviews are held and the project's progress is
communicated across the entire company on a regular basis.
The Company has an exposure to exchange risk however this is
partially mitigated through natural hedging activities.
In terms of uncertainties, product sales are still expected to
grow with future OEM projections now supported by contracts. The
Board expects continuing growth with Near OEM customers but sales
growth is expected to be modest in the retrofit market This
uncertainty is constantly assessed by regular customer meetings and
monitoring the level of enquiries and orders for both the Company's
products and industry wide.
In addition, the Company faces the continued uncertainty created
by the global economic and political climate, particularly Brexit.
The Company has assessed the risks surrounding this issue and,
whilst the outcome is still unknown, the Company believes that the
timing of the end of the transitional period, when considered
alongside supply timescales required by our German OEM 5 customer,
mean that any initial disruption should be avoided. The Company has
identified methods of coping with a changed customs environment and
will continue to monitor the situation and will react as
necessary.
In summary, the Company has made satisfactory progress in its
automotive projects and is progressing well with its expansion
plans. Please refer to note 21 for information on financial risk
management and exposure.
Events after the reporting period
Following the balance sheet date, the Company has raised
GBP2.25m after fees in a heavily over-subscribed placing and open
offer. This action was taken to mitigate the expected reduction in
turnover due to the current COVID-19 situation. The cash raised has
secured the Company's future and delivered a healthy balance sheet
going forward. In addition to this fund raise the directors have
taken actions to reduce cash outflows in the short to medium term
in order to give headroom for the Company in the future.
Directors and Staff
Post year end, the Company appointed Leigh Welch to the post of
Sales Director. Leigh joins the Company with a wealth of experience
in tier one automotive supply and sales most notably with Bosch and
Delphi.
We would like to thank all our colleagues, management and staff
alike, for their hard work and dedication over the past year.
Outlook
The 2020 financial year will clearly be impacted by COVID-19.
Whilst OEM 6 has announced a number of changes to SOP on important
cars for the Company, these changes had been broadly anticipated in
internal forecasts.
Thereafter the Board continues to expect to achieve positive
Adjusted EBITDA in 2021 and profit before tax in 2022.
The Board continues to expect gross margin and overheads in 2020
to be in line with previous guidance, including the COVID-19
statements. However, the adoption of IFRS 16 will increase
previously stated forecast losses by approximately GBP48k in 2020,
GBP44k in 2021, and GBP39k in 2022. These IFRS 16 adjustments have
no impact on cash.
On behalf of the board
David Bundred Kevin Johnson
Chairman Chief Executive
19 June 2020
Statement of Total Comprehensive Income
For the period ended 31 December 2019
Restated:
7m to 31(st) 7m to 31(st) 12m to 31(st)
Dec 2019 Dec 2018 May 2019
(unaudited)
GBP'000 GBP'000 GBP'000
------------------------------- ------------- ------------- ---------------
Revenue 1,451 515 1002
Cost of Sales (583) (188) (385)
------------------------------- ------------- ------------- ---------------
Gross Profit 868 328 617
Administrative Expenses:
Excluding research and
development costs (1,063) (972) (1,514)
Research and development
costs (1,502) (1,110) (2,039)
------------------------------- ------------- ------------- ---------------
Total administrative expenses (2,566) (2,081) (3,553)
------------------------------- ------------- ------------- ---------------
Other operating income
------------------------------- ------------- ------------- ---------------
Operating loss (1,698) (1,754) (2,936)
Financial Income 1 1 2
Financial Expenses (63) (53) (96)
------------------------------- ------------- ------------- ---------------
Loss before tax (1,760) (1,806) (3,030)
Taxation 443 233 921
------------------------------- ------------- ------------- ---------------
Loss for the period after
tax (1,317) (1,573) (2,109)
Total comprehensive loss
for the period attributable
to members (1,317) (1,573) (2,109)
------------------------------- ------------- ------------- ---------------
Loss per ordinary share
Basic and diluted (0.97)p (1.29)p (1.64)p
------------------------------- ------------- ------------- ---------------
Statement of Financial Position
03769702
at 31 December 2019
Restated
Dec-19 Dec-18 May-19 May-18
GBP'000 GBP'000 GBP'000 GBP'000
(unaudited)
------------------------------------- --------- ------------------ ----------- -----------
Non-current Assets
Property, plant and equipment 5,518 5,324 5,160 5,437
Intangibles 175 204 202 192
------------------------------------- --------- ------------------ ----------- -----------
5,693 5,528 5,362 5,629
Current assets
Inventories 1,006 1,109 1,162 855
Trade and other receivables 1,318 902 895 776
Cash and cash equivalents 770 319 1,925 923
------------------------------------- --------- ------------------ ----------- -----------
3,094 2,330 3,982 2,554
------------------------------------- --------- ------------------ ----------- -----------
Total assets 8,787 7,858 9,344 8,183
Current liabilities
Other interest bearing loans and
borrowings (118) (38) (88) (29)
Loans associated with right of
use assets (138) (137) (137) (137)
Trade and other payables (1,028) (388) (584) (790)
------------------------------------- --------- ------------------ ----------- -----------
(1,284) (563) (809) (956)
Non-current liabilities
Government Grants (200) (200) (200) (200)
Loans associated with right of
use assets `(1,207) (1,266) (1,244) (1,295)
Other interest bearing loans and
borrowings (476) (321) (270) (275)
------------------------------------- --------- ------------------ ----------- -----------
Total liabilities (3,167) (2,350) (2,523) (2,726)
------------------------------------- --------- ------------------ ----------- -----------
Net assets 5,620 5,508 6,821 5,457
------------------------------------- --------- ------------------ ----------- -----------
Equity
Share capital 1,361 1,237 1,360 1,140
Share premium 20,712 19,034 20,704 17,596
Capital reserve 464 464 464 464
Retained loss (16,917) (15,227) (15,706) (13,743)
------------------------------------- --------- ------------------ ----------- -----------
Total equity attributable to equity
shareholders of the company 5,620 5,508 6,822 5,457
------------------------------------- --------- ------------------ ----------- -----------
Statement of Changes in Equity
For the period to 31 December2019
Share premium Capital Retained
Share capital account reserve loss Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ -------------- -------------- ------------------------- --------- --------
Balance as at 31 May 2019 1,360 20,704 464 (15,706) 6,822
Comprehensive income for
the year
Loss for the period - - - (1,317) (1,317)
------------------------------ -------------- -------------- ------------------------- ---------
Total comprehensive income
for the year 1,360 20,704 464 (17,023) 5,505
------------------------------ -------------- -------------- ------------------------- --------- --------
Transactions with owners,
recorded directly to equity
Share options exercised 1 8 - - 9
Equity settled share based payment
transactions - - 106 106
---------------------------------------------- -------------- ------------------------- ---------
Total contributions by and
distributions to the owners 1 8 - 106 115
------------------------------ -------------- -------------- ------------------------- --------- --------
Balance at 31 Dec 2019 1,361 20,712 464 (16,917) 5,620
------------------------------ -------------- -------------- ------------------------- --------- --------
For the year to 31 May 2019
For the year
to Before IFRS16
31 May 2019 IFRS16 Impact Restated
Share
Share premium Capital Retained
capital account reserve loss Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- -------- -------- ------------------------- --------- ------------------------- --------- --------
Balance as at
31
May 2018 1,140 17,596 464 (13,652) (91) (13,743) 5,458
Comprehensive
income
for the year
Loss for the
period - - - (2,059) (50) (2,109) (2,109)
--------------- -------- -------- ------------------------- --------- ------------------------- ---------
Total
comprehensive
income for
the
year 1,140 17,596 464 (15,711) (141) (15,852) 3,349
--------------- -------- -------- ------------------------- --------- ------------------------- --------- --------
Transactions
with
owners,
recorded
directly to
equity
Shares issued
in
the period 213 3,228 - - - 3,441
Share options
exercised 7 63 - - - 70
Cost of issue
off
to share
premium - (183) - - - (183)
Equity settled share
based payment
transactions
- - - 146 - 146 146
------------------------- -------- ------------------------- --------- ------------------------- ---------
Total
contributions
by and
distributions
to the owners 220 3,108 - 146 - 146 3,474
--------------- -------- -------- ------------------------- --------- ------------------------- --------- --------
Balance at 31
May
2019 1,360 20,704 464 (15,565) (141) (15,706) 6,823
--------------- -------- -------- ------------------------- --------- ------------------------- --------- --------
For the 7months to 31
Dec
2018 (unaudited)
Share Share premium Capital Retained
capital account reserve loss Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- -------- ------------------------------------ ------------------------- --------- ----------
Balance as at 31 May
2018
(audited) 1,140 17,596 464 (13,743) 5,457
Comprehensive income for
the year
Loss for the year - - - (1,573) (1,573)
------------------------- -------- ------------------------------------ ------------------------- ---------
Total comprehensive
income
for the year 1,140 17,596 464 (15,316) 3,884
------------------------- -------- ------------------------------------ ------------------------- --------- ----------
Transactions with
owners,
recorded directly to
equity
Shares issued in the
year 90 1,445 - - 1,535
Share options exercised 7 62 - - 69
Cost of issue off to
share
premium - (69) - - (69)
Equity settled share based payment
transactions - - - 90 90
----------------------------------- ------------------------------------ ------------------------- ---------
Total contributions by
and distributions to
the
owners 97 1,438 - 90 1,625
------------------------- -------- ------------------------------------ ------------------------- --------- ----------
Balance at 31 Dec 2018 1,237 19,034 464 (15,226) 5,508
------------------------- -------- ------------------------------------ ------------------------- --------- ----------
Statement of Cash Flows
for the period ended 31 December 2019
7m to 31st 7m to 31st 12m to 31st
December December May
2019 2018 2019
(unaudited) (Restated)
GBP'000 GBP'000 GBP'000
---------------------------------------- ----------- ------------ ------------
Cash flow from operating activities
Loss after tax for the year (1,317) (1,573) (2,109)
Adjusted for:
Depreciation and amortisation
charge 289 244 442
Equity settled share-based payment
expenses 106 91 146
Financial expense 63 53 96
Financial income (1) (1) (2)
Taxation (442) (233) (921)
---------------------------------------- ----------- ------------ ------------
(1,302) (1,419) (2,348)
Changes in working capital
Decrease/(increase) in inventories 157 (254) (307)
Decrease/(increase) in trade and
other receivables (501) (126) 281
Increase/(decrease) in trade and
other payables 443 (402) (206)
---------------------------------------- ----------- ------------ ------------
(1,203) (2,201) (2,580)
Taxation received 523 233 521
---------------------------------------- ----------- ------------ ------------
Net cash used in operating activities (680) (1,968) (2,059)
---------------------------------------- ----------- ------------ ------------
Cash flows from investing activities
Acquisition of tangible and intangible
assets (344) (77) (175)
Net cash used in investing activities (344) (77) (175)
---------------------------------------- ----------- ------------ ------------
Cash flows from financing activities
Proceeds from issue of share capital,
net of expenses 9 1,535 3,328
Payment of lease liabilities (53) (42) 3
Payment of long term loans (25) - -
Interest received 1 1 2
Interest paid (63) (53) (96)
---------------------------------------- ----------- ------------ ------------
Net cash generated from financing
activities (131) 1,441 3,237
---------------------------------------- ----------- ------------ ------------
Net (decrease)/increase in cash
and cash Is equivalents (1,155) (604) 1,002
Cash and cash equivalents at the
beginning of the period 1,925 923 923
---------------------------------------- ----------- ------------ ------------
Cash and cash equivalents at the
end of the period 770 319 1,925
---------------------------------------- ----------- ------------ ------------
NOTES TO THE ACCOUNTS
1. Basis of preparation and general information
The financial information set out herein does not constitute
statutory accounts as defined in Section 434 of the Companies Act
2006.
The financial information for the year ended 31 May 2019 has
been extracted from the
Company's audited financial statements which were approved by
the Board of Directors
on 19 June 2020 and which, if adopted by the members at the
Annual General
Meeting, will be delivered to the Registrar of Companies for
England and Wales.
The financial information for the year ended 31 May 2019 has
been extracted from the
Company's audited financial statements which were approved by
the Board of Directors
on 8 September 2019 and which have been delivered to the
Registrar of Companies for
England and Wales.
The reports of the auditor on both these financial statements
were unqualified, did not
include any references to any matters to which the auditors drew
attention by way of
emphasis without qualifying their report and did not contain a
statement under Section
498(2) or Section 498(3) of the Companies Act 2006.
The information included in this preliminary announcement has
been prepared on a
going concern basis under the historical cost convention, and in
accordance with
International Financial Reporting Standards (IFRSs) as adopted
by the EU and the
International Financial Reporting Committee (IFRIC)
interpretations issued by the
International Accounting Standards Board (IASB) that are
effective or issued and early
adopted as at the date of these financial statements and in
accordance with the provisions of the Companies Act 2006.
The Company is a public limited company incorporated and
domiciled in England &
Wales and whose shares are quoted on AIM, a market operated by
the London Stock
Exchange. The principal activity of the Company is the
development and manufacture of
carbon ceramic products for the automotive and aerospace brakes
markets. The
registered office is Image Business Park, Acornfield Road,
Knowsley Industrial Estate,
Liverpool, L33 7UF.
2. Going Concern
The financial statements have been prepared on a going concern
basis which the
Directors believe to be appropriate. The Company incurred a net
loss of GBP1,317k during
the period however the Directors are satisfied, based on
detailed cash flow projections and after the consideration of
reasonable sensitivities, that sufficient cash is available to meet
the Company's needs as they fall due for the foreseeable future and
at least 12 months from the date of signing the accounts. The
detailed cash flow assumptions are based on the Company's annual
budget, prepared and approved by the Board, which reflects a number
of key assumptions including; revenue growth, underpinned by
current pipeline; customer compliance with payment terms; other
receipts of a value and timing consistent with previous years.
Further information regarding the Company's business activities,
together with the
factors likely to affect future development, performance and
position are set out in the
Chairman's statement and the Strategic report.
The current COVID-19 situation is expected to significantly
reduce revenues from those previously forecast for 2020. As a
result a fund raise has been carried out after the balance sheet
date to deliver resilience to the company. In addition the company
has taken cash protection measures in order to preserve working
capital until the full impact can be assessed. The fundraise has
however delivered the headroom required to give comfort over going
concern.
The Directors believe that the Company is well placed to manage
its business risks
successfully despite the current uncertain economic outlook.
After making enquiries, the Directors have a reasonable expectation
that the Company has adequate resources to continue in operational
existence for the foreseeable future. Accordingly, they continue to
adopt the going concern basis in preparing the annual report and
accounts.
3. Segmental reporting
The Board has reviewed the requirements of IFRS 8 "Operating
Segments", including
consideration of what results and information the Chief
Executive (the Chief Operating
Decision Maker) reviews regularly to assess performance and
allocate resources, and
concluded that all revenue falls under a single business
segment. The Directors consider
the business does not have separate divisional segments as
defined under IFRS 8. The
Chief Executive assesses the commercial performance of the
business based upon a single set of revenues, margins, operating
costs and assets.
Revenue by geographical destination is analysed as follows:
12m to 31st
Dec Dec May
2019 2018 2019
(unaudited)
GBP'000 GBP'000 GBP'000
-------------------------- -------- ------------ ------------
United Kingdom 963 118 220
Rest of Europe 165 168 492
United States of America 251 217 269
Rest of World 72 12 21
--------------------------
1,451 515 1,002
-------------------------- -------- ------------ ------------
4. Taxation
12m to 31st
7m to 31st December May
2019 2018 2019
GBP'000 GBP'000 GBP'000
------------------------------- ---------------------------------- -------- ------------
Analysis of credit in year
UK corporation tax
Adjustment in respect of prior years - R&D tax allowances
123 521
R&D tax allowance for current
year 320 233 400
Total income tax credit 443 233 921
------------------------------- ---------------------------------- -------- ------------
5. Loss per ordinary 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:
12m to 31st
7m to 31st December May
Basic 2019 2018 2019
-----------------------------------
Loss after tax (GBP) (1,317,000) (1,573,000) (2,059,000)
----------------------------------- ------------ ------------ ------------
Weighted average number of shares
(No. of shares) 136,036,376 122,027,122 125,184,218
----------------------------------- ------------ ------------ ------------
Loss per share (pence) (0.97p) (1.29p) (1.64p)
----------------------------------- ------------ ------------ ------------
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 options would have the effect of reducing the loss
per ordinary share from continuing operations and is therefore
anti-dilutive under the terms of IAS 33.
6. Net debt
As at 1 June Cash Flow Other non-cash 31 December
2019 movements 2019
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ------------- ---------- --------------- ------------
Cash and cash equivalents 1,925 (1,155) - 770
Leases (58) 13 (276) (319)
Long term loans (300) 25 - (275)
1,567 (1,117) (276) 174
--------------------------- ------------- ---------- --------------- ------------
For enquiries, please contact
Surface Transforms plc +44 151 356 2141
Kevin Johnson, CEO
Michael Cunningham, CFO
David Bundred, Chairman
Cantor Fitzgerald Europe (Nomad & Joint Broker) +44 20 7894 7000
David Foreman
finnCap Ltd (Joint Broker ) +44 20 7220 0500
Ed Frisby/Giles Rolls (Corporate Finance)
Richard Chambers (ECM)
For further Company details, visit www.surfacetransforms.com
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR DBGDLIXDDGGB
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June 22, 2020 02:00 ET (06:00 GMT)
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