TIDMSCE
RNS Number : 5831L
Surface Transforms PLC
09 September 2019
Surface Transforms plc
("Surface Transforms" or the "Company)
Preliminary Results and
Notice of Annual General Meeting
Surface Transforms (AIM:SCE) is pleased to announce it's
preliminary results for the year ended 31 May 2019. The Company's
Annual Report and Accounts for the year ended 31 May 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 Wednesday 30 October 2019 at 9.30am which
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 decreased GBP361k to GBP1,002k (2018: GBP1,363k)
-- Gross margin percentage reduced to 61.6% (2018: 67.4%)
-- LBITDA (including tax credit and excluding share-based
payments and non-recurring staff costs) increased to GBP1,564k
(2018: GBP1,382k)
-- Research costs increased to GBP2,074k (2018: GBP2,002k) which
has been partially offset by increased R&D tax credit of
GBP921k (2018: GBP465k)
-- Other administrative expenses increased by GBP431k to
GBP1,514k (2018: GBP1,083k) of which GBP150k were non-cash items,
primarily share based payments
-- Loss after taxation of GBP2,059k (2018: GBP1,834k)
-- Loss per share of 1.64p (2018: 1.66p)
-- Cash used in operating activities increased by GBP28k to GBP2,196k (2018: GBP2,168k)
-- Cash at 31 May 2019 was GBP1,925k (2018: GBP923k)
-- Capital expenditure in the year was GBP175k (2018: GBP2,024k)
-- Raised GBP3.3m, net of expenses, of equity finance in two
successful equity placings during the year
-- Following a history of successful claims, the Company has
accrued research and development tax credit relating to the year
resulting in a near doubling of this figure and reducing the loss
by an additional GBP400k
-- Announced change of financial year end reporting date from
May 31 to December 31 with effect from December 2019
Customer and Operational highlights
-- Post year end awarded an EUR11.8m contract over seven years
from major German automotive OEM 5 with SOP of October 2021
-- Post year end awarded a GBP6m contract over three years to be
fitted onto British specialist automotive company cars for OEM 6
with SOP end of calendar 2021
-- Won a GBP300k p.a. contract from Koenigsegg as customer
replaced its lower volume existing model
-- Continuing progress on development activity with OEM 3
-- All the furnaces for OEM production cell one now on site in
Knowsley. Expected to be in production by December 2019
-- On target to achieve 50% reduction in direct production cost
-- Awarded environmental certification ISO 14001
Chairman's Statement
The past 15 months, and more particularly the three-month period
of contract awards since 31 May 2019, have been transformational in
the development of Surface Transforms. The Company now has
multi-year, multi million revenue contracts that we expect to
support break even EBITDA (including tax credit) during 2020,
positive EBITDA (including tax credit) in 2021 and profit before
tax in 2022.
I summarise the progress made during the last 15 months by each
of our key customers and potential customers below:
Progress on customers
German OEM 5: This customer is one of the three major German
automotive companies. Winning a contract with one of these key
reference OEM customers has been a prime commercial objective for
Surface Transforms since its original formation. The contract
awarded to Surface Transforms is to be the sole supplier of the
carbon ceramic disc option on the front axle of one of the volume
cars in their stable; the lifetime revenue from the contract is
estimated to be EUR11.8m over the expected 6 to 7 years of the cars
production run with start of production (SOP) in October 2021.
Of equal, arguably greater, importance is the commercial
understanding and opportunity with OEM 5 to be selected for further
multiple vehicle platforms in the customer's portfolio over time.
These potential awards could generate revenues many times the value
of this first contract. The Company's carbon ceramic disc is now
part of German OEM 5's approved component list and whilst there
will always be testing on new models these tests are now more about
sizing and system integration than product evaluation. Furthermore,
pricing has been agreed with the customer providing a link between
increasing volumes and reduced product pricing.
British OEM 6: This customer is one of Britain's premier
high-performance car brands. The relationship with the customer is
through a tier one system integrator. It is an existing
relationship as the Company was nominated for a GBP2m contract on a
specialist one off car in 2018, as described in last year's report.
Post year-end, the customer, through the tier one system
integrator, awarded the Company a second GBP6m contract (plus
spares) to be spread over 3 years with SOP towards the end of
calendar 2021.
The SOP on the first contract was originally scheduled for March
2019 but will now commence at the end of 2019. This delay had cash
implications for the Company and thus the Company sought
recognition of the problem from our customer for this issue. As
previously reported in June 2019, we are pleased the situation has
been resolved amicably.
German OEM 3 This customer is the performance car division of
Germany's largest automotive Company. The German parent has given
OEM 3 the lead responsibility to approve the Company's products for
wider use within the Group as two other major subsidiaries (OEM 2
and OEM 4) also currently use carbon ceramic discs. As previously
reported all testing has been completed apart from a destruction
rig test in very specific environmental conditions, with the
successful criteria being the number of cycles achieved before
destruction. This test, unique to this customer, has proven to be
extremely difficult to pass and work has now been going on for a
number of years.
However, it is pleasing to report that considerable progress has
been made in the past six months. The investment in a new type of
furnace in Knowsley has facilitated a different approach to
resolving this problem and has led to a significant improvement in
test results. OEM 3 has frequent model selections each year and the
development and testing continues, with the customer sharing the
objective with the Company of achieving the test requirement for
the next model selection.
Near OEMs: We use this nomenclature to describe smaller
automotive car manufactures, re-builders or tuners typically
producing less than a few hundred cars per year, sometimes only one
or two cars a month. This segment has been growing for the Company
but in the year, three near OEM customers suffered either delayed
SOP and/or production problems. This led to a reduction in revenue
in the financial year. Nonetheless the business was not lost, and
revenue growth is expected to return in the next twelve months.
It was particularly pleasing to win both the Koenigsegg and
British OEM 6 orders as they are existing customers and this repeat
business is a testimony to their experience of our technology,
quality and supply chain capability.
Retrofit and Aftermarket: Whilst financially a small market the
fitting of the Company's products to existing cars is particularly
valuable in securing real world track and road experience of the
Company's discs. This experience of real customers driving real
cars on both road and track is not lost on our potential OEM
customers. It is effectively additional product testing and reduces
their risk of fitting our technology to production cars.
This retrofit market is mostly served by distributors and
therefore has the characteristic of relatively large orders at
infrequent, and difficult to forecast, periods. This distributor
volatility resulted in a reduction in sales in the financial year
ended 31 May 2019, as expected orders were pushed beyond our
year-end. This issue of aftermarket order volatility was part of
the reasoning behind the decision to change the Company's financial
year-end from 31 May to 31 December. We cannot change the
volatility of the Company's aftermarket sales, but we can at least
ensure that the Company's financial year-end is not in the middle
of the automotive racing season and that our financial year is
aligned with our OEM customers.
Progress on Operations:
Knowsley site: The relatively new Knowsley facility is a 5,000
square metre factory. It is ultimately planned to have five OEM
production cells plus the existing small volume production cell
(SVP). The combination of these six cells will have the capacity
for generating revenue in excess of GBP50m p.a. The SVP cell
exists, OEM production cell one is fully financed and under
construction and the subsequent four cells would need financing and
construction as new orders are won. Naturally any financing
requirement for the subsequent cells would include internal cash
generation and debt as the Company will be profitable long before
OEM Cell One reaches capacity limits.
SVP Cell: This cell is the original manufacturing capability
transferred from the old Ellesmere Port site with revenue capacity
of approximately GBP4.5m p.a. dependent on product mix. The cell
has performed well in the year achieving most of its key measures
of performance. Moreover, the team have improved capacity of the
cell through process optimisation and with minimal capital
expenditure. The sales from lower volume OEM customers (namely OEM
6), together with retrofit and near OEM customers will be
manufactured in this cell and therefore the cell will be close to
capacity in the next 18 months
OEM Cell One. This cell is planned to have the capacity to
generate revenues of circa GBP12m p.a., beginning with German
customer OEM 5 (SOP October 2021) and then any further large OEM
contracts. Clearly with this cell, but not future cells, the need
was to demonstrate capacity well in advance of potential need, to
re-assure the larger OEM customers that we have the capability to
supply them. It takes about 18 months to order, deliver and
commission a new cell and generally nomination of new cars is two
years ahead of SOP. Commissioning would therefore be broadly in
support of known or highly likely orders. A new cell costs about
GBP10m and has a payback - when in production - of approximately 18
months.
Excellent progress on bringing this cell into production was
made in the year. All the furnaces are now on site and given their
lower production costs and increased capability some are already
being used in production of parts for the SVP cell. The other
furnaces are in the final stages of commissioning. The team expect
to be able to release the complete cell for production in December
2019 with initial capacity of GBP6m reaching the target capacity
limit of GBP12m progressively during 2020.
Capital Markets Day: The Company intends to hold a Capital
Markets Day in Knowsley, in October 2019 to give shareholders the
opportunity to see the new production facilities in their virtually
finished state. Further details, with instructions on how to
register interest, will be provided in the near future.
Cost reduction: Over five years ago the Company set itself the
task of more than halving the production cost of its discs. It is
pleasing to report that this task is on schedule and is expected to
be achieved upon completion of OEM Cell One, expected in December
2019.
The Company is now confident of its competitiveness, evidenced
by the recent contract awards. However, like all disruptive
technologies there is a price elasticity curve for carbon ceramic
discs, indeed we believe that price elasticity for carbon ceramic
discs is currently high. The current high-performance car market
for the Company's products is potentially GBP2bn, however if the
Company (and indeed its competitor) wishes to further increase the
size of the market, beyond high performance cars, continuing cost
reduction is essential. Therefore, having achieved our initial cost
reduction goal, planning has now commenced on the second phase of
the on-going reduction in direct production costs.
Environment: The Company is acutely conscious of its
environmental responsibilities. We are determined to be a good
neighbour and to ensure that the unarguable environmental benefits
of using carbon ceramic discs (weight, fuel consumption, brake pad
dust and longer life) are not lost in the manufacturing
process.
Accordingly the Company secured approval of its environmental
process controls through the award of ISO 14001 certification.
The Company is still finalising approval of all its
environmental permits. As described previously, as a result of
increased scale and the introduction of new technologies the
Company is now operating in a different regulatory environment.
There are no fundamental issues in securing these permits, but the
process has taken longer than originally expected. The permits are
expected in time for the new OEM Cell One to be handed over to
production in December 2019.
David Bundred
Chairman
8 September 2019
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 and weight reduction compared to both our main
competitor's carbon ceramic products and other competitors iron
discs. For the aerospace industry our products offer weight
reduction, improved brake performance and superior wear life.
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 closely with Tier One suppliers and directly with
OEMs to meet their 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
-- Build manufacturing capacity capable of providing sales of
circa GBP17 million per annum which is further expandable, 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
Significant progress has been made post 31 May 2019 with
contract wins as a tier two supplier to OEM 6 and tier one supplier
to OEM 5.
The OEM 6 contract win is an illustration of how the customer's
demand is divided over several models with the life of these models
spread over many years which overlap. Once a product is approved
for use on the first model, with good supplier performance the
product has the opportunity to then be adopted on multiple model
platforms which run simultaneously over many years and therefore
provide long term revenue visibility and strong growth.
Like OEM 6 this key event of approval for use on the first model
has now been achieved for OEM 5 with an understanding with the
customer that further demand can be secured as new models are
launched.
OEM 3 (with OEM 2 and OEM 4 as part of the group) are supporting
the Company to achieve the same objective of first contract win.
The Company believes the one outstanding requirement can be
achieved with a combination of product refinements and process
improvements.
As part of being a good supplier we are also 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 re-work, which of
course also reduces cost; good progress is being made but there is
always more to do. Additionally, the award of the IATF 16949
quality approval, reported in the last annual report is another
measure of success in this area. This quality approval process
requires annual re-certification audits. It is therefore pleasing
to report that in the year the Company successfully completed its
first annual recertification of both IATF16949 and ISO 9001, with
only minor issues arising during the re-audit. Additionally, the
Company was approved as a supplier by all of its customers
following several appraisals in the year. These customer audits
included German OEM 5 who, naturally, uses the German VDA 6.3
approval process.
-- Environmental - The Company is now ISO14001 certified and has
the objective of being responsible for the environment and
improving it. The Company has now embarked on a campaign to reduce
its carbon footprint. The plan described some years ago, to install
a CHP plant on the site was never completed due to the failure of
the supplier; however, the Company learnt much from the experience
and is now restarting the project and searching for a more reliable
supplier.
-- 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 the year. 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 Cell to support OEM development, Near OEMs
and retrofit products. The objective of improving the capacity of
the SVP Cell has been achieved with the cell now 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 Cell One will
be in production before the end of this calendar year with all the
key equipment (principally furnaces) now on site. The capacity will
have a phased introduction with the first GBP6m of potential
revenue available by the end of 2019, with the remaining GBP6m of
revenue capacity planned for 2020. With the introduction of OEM
Cell One, the cost reduction objectives set a number of years ago
will be complete. OEM Cell One is more efficient than the SVP Cell
due to versatility requirement for the SVP; however, cost
reductions have been deployed from the OEM Cell One to the SVP
Cell. The cost reduction plans implemented across both the SVP Cell
and OEM Cell One will 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 only partially being achieved. The risks associated
with forecasting Near OEM sales, relating to SOP and production
delays, have been demonstrated in revenue timing issues this year.
To mitigate these risks and grow revenues the Company expects to
both expand the stable of Near OEM manufacturers using its products
during the next 12 months, as well as winning both additional
models and replacement models with existing customers. New orders
with Koenigsegg for the Jesko, their new 300mph supercar launched
at the Geneva Motor Show with annual revenues expected to be circa
GBP300k with SOP 2020 and BAC launching their new Mono R model with
the Company's ceramic brake as standard are encouraging examples of
succeeding with the latter objective.
We continue to sell retrofit kits for Porsche, Nissan GTR, Aston
Martin, Ferrari and McLaren. We did not see the expected growth
during the year due to order volatility from the characteristic of
a small number of large orders from distributors. During the year
we introduced retrofit products for all the current McLaren range
and will have the benefit of full year sales from these products
going forward. We therefore expect modest revenue growth going
forward.
Aircraft brakes
The Company has previously completed the product, quality,
environmental, and supply chain requirements for the customer (a
tier 1 supplier). Realising the objective of turning this
engineering achievement into recurring revenues remains uncertain
as it is linked to programme timing decision between our customer
(tier 1 supplier) and the airframe manufacturer. Regular
discussions with the customer to secure financial commitments which
are linked to programme milestones are ongoing.
Summary
There has been significant investment in engineering work during
the year which has culminated in the successful contract wins with
OEM 6 and OEM 5. The Company continues investing in engineering
with OEM 3 and continues to expect growth in near OEM customers
both existing and new. 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
In the year to 31 May 2019 revenues fell to GBP1,002k, this was
in large part due to the delay in SOP of the OEM 6 hyper car,
volatility of demand from aftermarket distributors and delayed SOP
and production problems at three of the Company's near OEM
customers.
Gross margin deteriorated during the year to 61.6% (2018:
67.4%); driven by lower volumes of development parts and near-OEM
sales mix during the year. Significant work has been carried out on
cost reduction programs, linked to OEM Cell One and these are
expected to start coming on stream in the new financial year and
will deliver improved margin within our existing retrofit and near
OEM markets. These developments, together with return to more
normal sales mix are expected to result in return to more historic
gross margin percentages going forward.
Research and development costs remained flat at GBP2.1m (2018:
GBP2.0m) primarily driven by testing for OEM 5 and on-going testing
for OEM 3.
Other administrative expenses increased by GBP431k to GBP1,514k
(2018: GBP1,083k) of which approx. GBP150k were non cash increases
in depreciation and share based payment charges, and approx.
GBP200k due to increased payroll costs as the management team and
mix of staff was strengthened in the year, with the remainder being
increased insurance and facility costs.
Losses after taxation increased by 12.2% to GBP2.1m (2018:
GBP1.8m) driven by the reduced sales, decreased margin and a return
to a normal level of share-based payment charge.
The result for 2019 includes the research and development tax
credit claims made for 2018 and expected to be made for 2019
reflecting the Company's history of successfully making R&D tax
credit claims to HMRC. This has the effect of reducing loss after
tax in FY19 by the GBP400k accrued receivable. This item is
non-cash in year and will not recur in future years.
At 31 May 2019, inventory was GBP1.2m (2018: GBP0.9m). This
increase has been driven by the change of supplier of a raw
material as well as the processing of materials to achieve
communicated delivery schedules for OEM 6. As previously
communicated the OEM 6 schedule has now been delayed but post year
end an agreement was reached with our tier one supplier to
financially support the stock position.
Net cash used in operating activities remained flat at GBP2.2m,
with the increased stock being offset by an improved debtors'
position and increased R&D tax credit.
The Company had cash and cash equivalents of GBP1.9m at 31 May
2019 (2018: GBP0.9m). In addition to this sum is an expected
R&D tax credit of over GBP400k (expected to be received
November 2019).
Loss per share was 1.64 pence (2018: loss 1.66 pence).
Change of year end date:
The Company has announced that it intends to change its year-end
reporting date from 31 May to 31 December. This brings the Company
into line with its major OEM customers who all have calendar year
financial years, whilst also avoiding having a year-end in the
middle of the automotive racing season
The issue of this report will be the last to cover a
twelve-month trading period ending on 31 May. The Company will then
report:
- Unaudited interim results for the six months ending 30 November 2019 by 28 February 2020
- Audited results for the seven months ending 31 December 2019 by 30 June 2020
- Unaudited interim results for the six months ending 30 June 2020 by 30 September 2020
- Audited results for the twelve months ending 31 December 2020 by 30 June 2021
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
As in previous years the principal 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 post
year end contract awards 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 the factory move are no longer a
concern. 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. Sales
growth is expected to be modest in the retrofit market with an
increasing number of distributors and the Board expects continuing
growth with Near OEM customers. 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 proposed exit from the EU, 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 22 for information on financial risk
management and exposure.
Directors and Staff
During the year the Company appointed Steve Harvey as Senior
Operations Manager, Steve joins the Company from the OEM tier 1
environment and the Board believes that his knowledge and
experience will drive excellence in our production processes as we
begin supplying to volume contracts.
We would like to thank all our colleagues, management and staff
alike, for their hard work and dedication over the past year.
Outlook
The Board now has a high degree of confidence in accelerating
sales growth, the timing of which now being underpinned by contract
awards.
The underlying sales for the new "rump" reporting period of
seven months to December 2019 will be in line with previous
guidance - roughly half of the previously expected sales for the
twelve months to May 2020.
For the following twelve months to December 2020 this year will
now capture the bulk of the sales of the first contract from OEM 6,
and, slightly higher than previously foreseen, development revenues
from OEM 5. These combined revenues, together with return to modest
growth in Near OEM and retrofit sales, approximate to the point at
which the Company expects to achieve positive EBITDA (including tax
credit) during the course of the year.
These OEM contracts and Near OEM and retrofit sales continue
into the year December 2021, a year that will now include the SOP
(in the last quarter) of OEM 5, the second contract from OEM 6 and
the higher volumes as the Koenigsegg Jesko replaces the Regera. The
effect is that revenues are then expected to get to the point where
the Company is generating modest levels of cash from
operations.
The full combined effect of the contract wins on OEM 5 and OEM 6
are seen in the first full year of production being 2022, whereat
the Company is expected to be profitable.
On behalf of the board
David Bundred Kevin Johnson
Chairman Chief Executive
8 September 2019
Statement of Total Comprehensive Income
For the year ended 31 May 2019
Note 2019 2018
GBP'000 GBP'000
------------------------------------------ ----- ------------------------------- -------------------------------
Revenue 3 1,002 1,363
Cost of Sales (385) (445)
------------------------------------------ ----- ------------------------------- -------------------------------
Gross Profit 617 918
Administrative Expenses:
Excluding research and development costs (1,514) (1,083)
Research and development costs (2,074) (2,002)
------------------------------------------ ----- ------------------------------- -------------------------------
Total administrative expenses (3,588) (3,085)
------------------------------------------ ----- ------------------------------- -------------------------------
Other operating income - -
------------------------------------------ ----- ------------------------------- -------------------------------
Operating loss before non-recurring
items (2,971) (2,167)
Non-recurring items - (133)
Financial Income 2 1
Financial Expenses (11) -
------------------------------------------ ----- ------------------------------- -------------------------------
Loss before tax (2,980) (2,299)
Taxation 4 921 465
------------------------------------------ ----- ------------------------------- -------------------------------
Loss for the year after tax (2,059) (1,834)
Other comprehensive income - -
------------------------------------------ ----- ------------------------------- -------------------------------
Total comprehensive loss for the year
attributable to members (2,059) (1,834)
------------------------------------------ ----- ------------------------------- -------------------------------
Loss per ordinary share
Basic and diluted 5 (1.64)p (1.66)p
------------------------------------------ ----- ------------------------------- -------------------------------
Statement of Financial Position
at 31 May 2019
2019 2019 2018 2018
GBP'000 GBP'000 GBP'000 GBP'000
Non-current Assets
Property, plant and
equipment 3,921 4,096
Intangibles 202 192
-------------------------------------- -------- --------- -------- ---------
4,123 4,288
Current assets
Inventories 1,162 855
Trade and other receivables 895 776
Cash and cash equivalents 1,925 923
-------------------------------------- -------- --------- -------- ---------
3,982 2,554
------------------------------------- -------- --------- -------- ---------
Total assets 8,105 6,842
-------------------------------------- -------- --------- -------- ---------
Current liabilities
Other interest-bearing
loans and borrowings (88) (29)
Trade and other payables (584) (790)
-------------------------------------- -------- --------- -------- ---------
(672) (819)
Non-current liabilities
Government Grants (200) (200)
Other interest-bearing
loans and borrowings (270) (275)
-------------------------------------- -------- --------- -------- ---------
Total liabilities (1,142) (1,294)
-------------------------------------- -------- --------- -------- ---------
Net assets 6,963 5,548
-------------------------------------- -------- --------- -------- ---------
Equity
Share capital 1,360 1,140
Share premium 20,704 17,596
Capital reserve 464 464
Retained loss (15,565) (13,652)
-------------------------------------- -------- --------- -------- ---------
Total equity attributable to equity
shareholders of the company 6,963 5,548
-------------------------------------- -------- --------- -------- ---------
Statement of Changes in Equity
For the year to 31 May 2019
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
2017 903 14,390 464 (11,851) 3,906
Comprehensive income
for the
year
Loss for the year - - - (1,834) (1,834)
------------------------ ------------------- ------------------- ------------------- ------------------- --------
Total comprehensive
income
for the year - - - (1,834) (1,834)
------------------------ ------------------- ------------------- ------------------- ------------------- --------
Transactions with
owners,
recorded directly to
equity
Shares issued in the
year 237 3,681 - - 3,918
Cost of issue off to
share
premium - (475) - - (475)
Equity settled
share-based
payment transactions - - - 33 33
------------------------ ------------------- ------------------- ------------------- ------------------- --------
Total contributions by
and
distributions to the
owners 237 3,206 - 33 3,476
------------------------ ------------------- ------------------- ------------------- ------------------- --------
Balance at 31 May 2018 1,140 17,596 464 (13,652) 5,548
------------------------ ------------------- ------------------- ------------------- ------------------- --------
For the year to 31 May 2019
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) 5,548
Comprehensive income
for the
year
Loss for the year - - - (2,059) (2,059)
------------------------ ------------------- ------------------- ------------------- ------------------- --------
Total comprehensive
income
for the year - - - (2,059) (2,059)
------------------------ ------------------- ------------------- ------------------- ------------------- --------
Transactions with
owners,
recorded directly to
equity
Shares issued in the
year 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
------------------------ ------------------- ------------------- ------------------- ------------------- --------
Total contributions by
and
distributions to the
owners 220 3,108 - 146 3,474
------------------------ ------------------- ------------------- ------------------- ------------------- --------
Balance at 31 May 2019 1,360 20,704 464 (15,565) 6,963
------------------------ ------------------- ------------------- ------------------- ------------------- --------
Statement of Cash Flows
for the year ended 31 May 2019
2019 2018
GBP'000 GBP'000
---------------------------------------------- -------- --------
Cash flow from operating activities
Loss after tax for the year (2,059) (1,834)
Adjusted for:
Depreciation and amortisation charge 340 287
Equity settled share-based payment expenses 146 33
Financial expense 11 -
Financial income (2) (1)
Taxation (921) (465)
---------------------------------------------- -------- --------
(2,485) (1,980)
Changes in working capital
Increase in inventories (307) (348)
Decrease in trade and other receivables 281 (411)
(Decrease)/increase in trade and other
payables (206) 106
---------------------------------------------- -------- --------
(2,717) (2,633)
Taxation received 521 465
---------------------------------------------- -------- --------
Net cash used in operating activities (2,196) (2,168)
---------------------------------------------- -------- --------
Cash flows from investing activities
Acquisition of tangible and intangible
assets (107) (2,024)
Net cash used in investing activities (107) (2,024)
---------------------------------------------- -------- --------
Cash flows from financing activities
Proceeds from issue of share capital,
net of expenses 3,328 3,443
Payment of finance lease liabilities (14) (8)
Proceeds from long term loans - 148
Interest received 2 -
Interest paid (11) -
---------------------------------------------- -------- --------
Net cash generated from financing activities 3,305 3,583
---------------------------------------------- -------- --------
Net increase/(decrease) in cash and
cash equivalents 1,002 (609)
Cash and cash equivalents at the beginning
of the period 923 1,532
---------------------------------------------- -------- --------
Cash and cash equivalents at the end
of the period 1,925 923
---------------------------------------------- -------- --------
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 8 September 2019 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 2018 has
been extracted from the
Company's audited financial statements which were approved by
the Board of Directors
on 22 September 2018 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 GBP2,059k during
the year 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 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:
2019 2018
GBP'000 GBP'000
-------------------------- -------- --------
United Kingdom 220 504
Rest of Europe 492 294
United States of America 269 529
Rest of World 21 36
--------------------------
1,002 1,363
-------------------------- -------- --------
4. Taxation
2019 2018
GBP'000 GBP'000
-------------------------------------- -------- --------
Analysis of credit in year
UK corporation tax
Adjustment in respect of prior years
- R&D tax allowances 521 465
R&D tax allowances for current year 400 -
-------------------------------------- -------- --------
Total income tax credit 921 465
-------------------------------------- -------- --------
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:
Basic 2019 2018
---------------------------------------- ------------ ------------
Loss after tax (GBP) (2,059,000) (1,834,000)
---------------------------------------- ------------ ------------
Weighted average number of shares (No.
of shares) 125,184,218 110,280,735
---------------------------------------- ------------ ------------
Loss per share (pence) (1.64p) (1.66p)
---------------------------------------- ------------ ------------
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
Other non-cash
movements
1 June 2018 Cash Flow 31 May 2019
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- -------------- ------------ --------------- --------------
Cash and cash equivalents 923 1,002 - 1,925
Finance Leases (4) 14 (68) (58)
Other borrowings (300) - - (300)
--------------------------- -------------- ------------ --------------- --------------
619 1,016 (68) 1,567
--------------------------- -------------- ------------ --------------- --------------
Other non-cash movements relate to new finance leases.
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/ Michael Boot (Corporate Finance)
Caspar Shand Kydd/ Maisie Atkinson (Sales)
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 DBGDCSXGBGCI
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September 09, 2019 02:00 ET (06:00 GMT)
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