TIDMSCE

RNS Number : 4226E

Surface Transforms PLC

28 February 2020

The information communicated within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

28 February 2020

Surface Transforms plc.

("Surface Transforms" or the "Company")

Unaudited interim results for the six months ended 30 November 2019

Surface Transforms (AIM: SCE) manufacturers of carbon fibre reinforced ceramic materials, announces its unaudited interim results for the six months ended 30 November 2019.

As previously reported, the Company has changed its accounting year-end date to 31 December. To assist with the transition this six-month statement also includes certain unaudited results for the seven months to 31 December 2019. The full audited results and report for the seven-month period to 31 December 2019 will be issued on 30 March 2020.

Financial highlights (seven months ended 31 December 2019)

   --    Revenue increased 183% to GBP1,451k (7 months to 31 December 2018: GBP512k). 
   --    Gross profit increased to GBP868k, representing a gross margin of 60% 
   --    Cash at 31 December 2019 was GBP770k (31 December 2018: GBP319k) 

Financial highlights (six months ended 30 November 2019)

   --    Revenue increased 102% to GBP1,029k (H1-2018: GBP509k) 
   --    Gross profit in the six month period increased 95% to GBP630k (H1-2018: GBP322k) 
   --    Loss before and after tax in the six month period decreased to GBP1,302k (H1-2018: GBP1,509k) 

-- Capital expenditure on property, plant and equipment of GBP582k (H1-2018: GBP144k) mainly related to the installation of Production OEM Cell One

   --    Inventory at 30 November 2019 was GBP1,120k (31 May 2019: GBP1,162k) 

Sales 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 

-- Won and delivered a GBP400k contract with OEM 1, another British automotive customer. Discussions continue regarding follow on business

   --    Continued progress on testing for OEM 3 
   --    Received full regulatory approval from the Environmental Agency for the Knowsley site 

Financial Review

Revenue in the seven months to 31 December 2019 increased to GBP1,451k (seven months to 31 December 2018: GBP512k) 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 November 2019 were GBP1,029k (H1-2018: GBP509k). The high sales in December 2019 reflected the production catch up situation on near OEM and aftermarket sales as the prior months of September and November had been devoted to 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 (H1-2018: GBP322k). Gross profit margin was 61% (H1-2018: 63%) 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 Balance Sheet creating right of use assets totalling GBP1.5m together with corresponding liabilities. The impact on the Income Statement is to exchange a reduction in the rent (hitherto treated as an expense) for an increase in interest and depreciation. In the six months to 30 November 2019 this added a net GBP29k 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 GBP134k to GBP864k (H1-2018: GBP730k) 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 GBP1,294k (H1-2018: GBP1,068k) 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 (December 2018: GBP319k), to which can be added GBP425k customer payments received in the first week of January; the corresponding cash balance at the end of the half-year was GBP81k (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 0.96p (H1-2018: 1.24p).

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 : Notwithstanding recent customer announcements on the SOP of future models relevant to Surface Transforms, the Company is maintaining guidance on overall timing of Company revenues. On the first contract we won with them in 2017 the customer now expects to enter production in the summer of 2020; however this delay had been anticipated by the Company and is 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 from the fourth quarter of 2021 to the second half of 2022. Again, the Company had previously included a general overall delay contingency to provide against any such risk.

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 to continuing further process improvement to widen the potential for nominations.

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 systems 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.

Outlook

There are no changes to overall revenue guidance. 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.

The Board continues to expect gross margin percentages and overheads to be in line with previous guidance. 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.

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.

The Board maintains previous guidance that, with the recent awards of multi year, multi million revenue contracts, the Company will reach break-even EBITDA (including the tax credit) in H2 2020, positive EBITDA (including the tax credit) in 2021 and profit before tax in 2022.

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.

Finally, may I conclude by recording the Board's appreciation of the outstanding contribution by all members of staff. Thank You!

David Bundred

Chairman

For enquiries, please contact:

Surface Transforms plc.

   Kevin Johnson, CEO                                                              +44 151 356 2141 

Michael Cunningham CFO

David Bundred, Chairman

   Cantor Fitzgerald Europe (Nomad & Joint-Broker)   +44 20 7894 7000 

David Foreman / Michael Boot / Adam Dawes (Corporate Finance)

Caspar Shand-Kydd / Maisie Atkinson (Sales)

   finnCap Ltd (Joint-Broker)                                               +44 20 7220 0500 

Ed Frisby / Giles Rolls (Corporate Finance)

Richard Chambers (Corporate Broking)

For further Company details, visit www.surfacetransforms.com

Statement of Total Comprehensive Income

 
                                                                   RESTATED    RESTATED 
                                                         Seven 
                                        Six Months      Months   Six Months        Year 
                                             Ended       Ended        Ended       Ended 
                                         30-Nov-19   31-Dec-19    30-Nov-18   31-May-19 
                                           GBP'000     GBP'000      GBP'000     GBP'000 
                                         Unaudited   Unaudited    Unaudited   Unaudited 
-------------------------------------  -----------  ----------  -----------  ---------- 
 Revenue                                     1,029       1,451          509       1,002 
 Cost of Sales                               (399)       (583)        (187)       (385) 
-------------------------------------  -----------  ----------  -----------  ---------- 
 Gross Profit                                  630         868          322         617 
 
 Administrative Expenses: 
 Before research and development 
  costs                                      (864)     (1,063)        (730)     (1,514) 
 Research and development costs            (1,294)     (1,502)      (1,055)     (2,039) 
-------------------------------------  -----------  ----------  -----------  ---------- 
 Total administrative expenses             (2,158)     (2,566)      (1,785)     (3,553) 
-------------------------------------  -----------  ----------  -----------  ---------- 
 Other operating income 
-------------------------------------  -----------  ----------  -----------  ---------- 
 Operating loss before non recurring 
  items                                    (1,528)     (1,698)      (1,463)     (2,936) 
 
 Non-recurring items                             0           0          (3)           0 
 
 Financial Income                                1           1            1           2 
 Financial Expenses                           (49)        (63)         (44)        (96) 
-------------------------------------  -----------  ----------  -----------  ---------- 
 Loss before tax                           (1,576)     (1,760)      (1,509)     (3,030) 
 Taxation                                      274         443            0         921 
-------------------------------------  -----------  ----------  -----------  ---------- 
 Loss for the year after tax               (1,302)     (1,317)      (1,509)     (2,109) 
 
 Total comprehensive loss for the 
  year attributable to members             (1,302)     (1,317)      (1,509)     (2,109) 
-------------------------------------  -----------  ----------  -----------  ---------- 
 
 Loss per ordinary share 
 Basic and diluted                         (0.96)p     (0.97)p      (1.24)p     (1.68)p 
-------------------------------------  -----------  ----------  -----------  ---------- 
 

Statement of Financial Position

 
                                                                   RESTATED    RESTATED 
                                                         Seven 
                                        Six Months      Months   Six Months        Year 
                                             Ended       Ended        Ended       Ended 
                                         30-Nov-19   31-Dec-19    30-Nov-18   31-May-19 
                                           GBP'000     GBP'000      GBP'000     GBP'000 
                                         Unaudited   Unaudited    Unaudited   Unaudited 
-------------------------------------  -----------  ----------  -----------  ---------- 
 Non-current Assets 
 Property, plant and equipment               4,356       4,336        4,069       3,921 
 Right of use assets                         1,190       1,182        1,290       1,239 
 Intangibles                                   173         175          218         202 
-------------------------------------  -----------  ----------  -----------  ---------- 
                                             5,719       5,694        5,577       5,362 
 Current assets 
 Inventories                                 1,120       1,006        1,062       1,162 
 Trade and other receivables                 1,787       1,317          619         895 
 Cash and cash equivalents                      81         770          745       1,925 
-------------------------------------  -----------  ----------  -----------  ---------- 
                                             2,988       3,093        2,426       3,982 
-------------------------------------  -----------  ----------  -----------  ---------- 
 Total assets                                8,707       8,787        8,003       9,344 
 
 Current liabilities 
 Other interest bearing loans and 
  borrowings                                  (68)       (118)         (65)        (88) 
 Loans associated with right of 
  use assets                                 (138)       (138)        (137)       (137) 
 Trade and other payables                    (934)     (1,028)        (478)       (584) 
-------------------------------------  -----------  ----------  -----------  ---------- 
                                           (1,140)     (1,284)        (680)       (809) 
 Non-current liabilities 
 Government Grants                           (200)       (200)        (200)       (200) 
 Liabilities associated with right 
  of use assets                            (1,218)     (1,207)      (1,274)     (1,244) 
 Other interest bearing loans and 
  borrowings                                 (531)       (476)        (357)       (270) 
-------------------------------------  -----------  ----------  -----------  ---------- 
 Total liabilities                         (1,949)     (1,883)      (1,831)     (1,714) 
-------------------------------------  -----------  ----------  -----------  ---------- 
 Net assets                                  5,618       5,618        5,493       6,822 
-------------------------------------  -----------  ----------  -----------  ---------- 
 
 Equity 
 Share capital                               1,361       1,361        1,230       1,360 
 Share premium                              20,712      20,712       18,972      20,704 
 Capital reserve                               464         464          464         464 
 Retained loss                            (16,918)    (16,917)     (15,175)    (15,706) 
-------------------------------------               ---------- 
 Total equity attributable to equity 
  shareholders of the company                5,618       5,620        5,490       6,822 
-------------------------------------  -----------  ----------  -----------  ---------- 
 

Statement of Cash Flow

 
                                                                      RESTATED    RESTATED 
                                                            Seven 
                                           Six Months      Months   Six Months        Year 
                                                Ended       Ended        Ended       Ended 
                                            30-Nov-19   31-Dec-19    30-Nov-18   31-May-19 
                                              GBP'000     GBP'000      GBP'000     GBP'000 
                                            Unaudited   Unaudited    Unaudited   Unaudited 
----------------------------------------  -----------  ----------  -----------  ---------- 
 Cash flow from operating activities 
 Loss after tax for the year                  (1,302)     (1,317)      (1,509)     (2,109) 
 
 Adjusted for: 
 Profit on disposal of property 
  plant and equipment                               0           0            0           0 
 Depreciation and amortisation charge             239         290          209         442 
 Equity settled share-based payment 
  expenses                                         91         106           80         146 
 Financial expense                                 49          63           44          96 
 Financial income                                 (1)         (1)          (1)         (2) 
 Taxation                                           0       (443)            0       (921) 
----------------------------------------  -----------  ----------  -----------  ---------- 
                                                (924)     (1,302)      (1,178)     (2,348) 
 Changes in working capital 
 Decrease/(increase) in inventories                42         157        (206)       (307) 
 Decrease/(increase) in trade and 
  other receivables                             (892)       (422)          157         281 
 Increase/(decrease) in trade and 
  other payables                                  350         444        (252)       (206) 
----------------------------------------  -----------  ----------  -----------  ---------- 
                                              (1,424)     (1,123)      (1,479)     (2,580) 
 Taxation received                                  0         443            0         521 
----------------------------------------  -----------  ----------  -----------  ---------- 
 Net cash used in operating activities        (1,424)       (681)      (1,479)     (2,059) 
----------------------------------------  -----------  ----------  -----------  ---------- 
 
 Cash flows from investing activities 
 Acquisition of tangible and intangible 
  assets                                        (597)       (622)        (156)       (175) 
 Proceeds from disposal of property, 
  plant and equipment                               0           0            0           0 
 Net cash used in investing activities          (597)       (622)        (156)       (175) 
----------------------------------------  -----------  ----------  -----------  ---------- 
 
 Cash flows from financing activities 
 Proceeds from issue of share capital, 
  net of expenses                                   9           9        1,466       3,328 
 Payment of finance lease liabilities            (63)        (53)         (33)           3 
 Proceeds from long term loans                    279         253           66           0 
 Interest received                                  1           1            2           2 
 Interest paid                                   (49)        (63)         (44)        (96) 
----------------------------------------  -----------  ----------  -----------  ---------- 
 Net cash generated from financing 
  activities                                      177         147        1,457       3,236 
----------------------------------------  -----------  ----------  -----------  ---------- 
 Net (decrease)/increase in cash 
  and cash equivalents                        (1,844)     (1,155)        (178)       1,002 
 Cash and cash equivalents at the 
  beginning of the period                       1,925       1,925          923         923 
----------------------------------------  -----------  ----------  -----------  ---------- 
 Cash and cash equivalents at the 
  end of the period                                81         770          745       1,925 
----------------------------------------  -----------  ----------  -----------  ---------- 
 

Statement of Changes in Equity

 
                                                                     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 2019                    1,360                 20,704                    464   (15,707)     6,821 
 Comprehensive income for 
  the year 
 Loss for the year                                                                                   (1,302)   (1,302) 
----------------------------  ---------------------  ---------------------  ---------------------  --------- 
 Total comprehensive income 
  for the year                                    -                      -                      -    (1,302)   (1,302) 
----------------------------  ---------------------  ---------------------  ---------------------  ---------  -------- 
 Transactions with owners, 
 recorded directly to equity 
 Shares issued in the year                        1                      8                                           9 
 Equity settled share based 
  payment transactions                                                                                    91        91 
----------------------------  ---------------------  ---------------------  ---------------------  --------- 
 Total contributions by and 
  distributions to the 
  owners                                          1                      8                      -         91       100 
----------------------------  ---------------------  ---------------------  ---------------------  --------- 
 Balance at 30 November 2019                  1,361                 20,712                    464   (16,918)     5,618 
----------------------------  ---------------------  ---------------------  ---------------------  ---------  -------- 
 
 
                                                                                                                               Restated 
                                                        Share                             Retained                             Retained 
                                 Share                premium                Capital          loss                 IFRS16          loss 
                               capital                account                reserve   (Unaudited)                 Impact   (Unaudited)     Total 
                        GBP'000                GBP'000                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)     5,457 
 Comprehensive 
 income 
 for the year 
 Loss for the 
  year                                                                                     (1,482)                   (27)       (1,509)   (1,509) 
---------------  ---------------------  ---------------------  ---------------------  ------------                         ------------  -------- 
 Total 
  comprehensive 
  income for 
  the year                           -                      -                      -       (1,482)                   (27)       (1,509)   (1,509) 
---------------  ---------------------  ---------------------  ---------------------  ------------  ---------------------  ------------  -------- 
 Transactions 
 with owners, 
 recorded 
 directly to 
 equity 
 Shares issued 
  in the 
  year                              90                  1,445                                                                               1,535 
 Cost of issue 
  off to 
  share premium                                          (69)                                                                                (69) 
 Equity settled 
  share 
  based payment 
  transactions                                                                                  76                                   76        76 
---------------  ---------------------  ---------------------  ---------------------  ------------  ---------------------  ------------  -------- 
 Total 
  contributions 
  by and 
  distributions 
  to the owners                     90                  1,376                      -            76                      -            76     1,542 
---------------  ---------------------  ---------------------  ---------------------  ------------  ---------------------  ------------  -------- 
 Balance as at 
  30 November 
  2018                           1,230                 18,972                    464      (15,058)                  (118)      (15,176)     5,490 
---------------  ---------------------  ---------------------  ---------------------  ------------  ---------------------  ------------  -------- 
 
 
                                                                                                                             Restated 
                                                        Share                           Retained                             Retained 
                                 Share                premium                Capital        loss                 IFRS16          loss 
                               capital                account                reserve   (Audited)                 Impact   (Unaudited)     Total 
                        GBP'000                GBP'000                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)     5,457 
 Comprehensive 
 income 
 for the year 
 Loss for the 
  year                                                                                   (2,059)                   (50)       (2,109)   (2,109) 
---------------  ---------------------  ---------------------  ---------------------  ----------  ---------------------  ------------  -------- 
 Total 
  comprehensive 
  income for 
  the year                           -                      -                      -     (2,059)                   (50)       (2,109)   (2,109) 
---------------  ---------------------  ---------------------  ---------------------  ----------  ---------------------  ------------  -------- 
 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                                                                               145                                  145       145 
---------------  ---------------------  ---------------------  ---------------------  ----------  ---------------------  ------------  -------- 
 Total 
  contributions 
  by and 
  distributions 
  to the owners                    220                  3,108                      -         145                      -           145     3,473 
---------------  ---------------------  ---------------------  ---------------------  ----------  ---------------------  ------------  -------- 
 Balance as at 
  31 May 
  2019                           1,360                 20,704                    464    (15,566)                  (141)      (15,707)     6,821 
---------------  ---------------------  ---------------------  ---------------------  ----------  ---------------------  ------------  -------- 
 

SURFACE TRANSFORMS PLC

NOTES

   1.            Accounting policies 

The interim financial statements are the responsibility of the Directors and were authorised and approved by the Board of Directors for issuance on 28 February 2020.

Basis of preparation

The Company is a public limited liability Group incorporated and domiciled in England & Wales. The financial information is presented in Pounds Sterling (GBP) which is also the functional currency. The Company's accounting reference date is 31 December.

These interim condensed financial statements are for the six months to 30 November 2019. They have not been prepared in accordance with IAS 34, Interim Financial Reporting that is not mandatory for UK AIM listed companies, in the preparation of this half-yearly financial report. While the financial information included has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), as adopted by the European Union (EU), these interim results do not contain sufficient information to comply with IFRS.

These interim results for the period ended 30 November 2019, which are not audited; do not comprise statutory accounts within the meaning of section 435 of the Companies Act 2006.

Full audited accounts of the Company in respect of the year ended 31 May 2019, which received an unqualified audit opinion and did not contain a statement under section 498(2) or (3) (accounting record or returns inadequate, accounts not agreeing with records and returns or failure to obtain necessary information and explanations) of the Companies Act 2006 and have been delivered to the Registrar of Companies.

The accounting policies used in the preparation of the financial information for the six months ended 30 November 2019 are in accordance with the recognition and measurement criteria of IFRS as adopted by the EU and are consistent with those which will be adopted in the annual statutory financial statements for the year ending 31 December 2019.

Accounting for Right of Use Assets

IFRS 16 requires the company to capitalise assets to which it has the right of use. Assets are then depreciated and implicit interest charged to the P&L. The company has followed accepted guidance in the preparation of these charges. The impact of the standard is to accelerate the charge to the P&L of the lease liability and to reduce expenses and increase interest and depreciation charges. The only significant right of use asset applicable to the company is the rent payable on the Knowsley facility. The actual rent payable remains as previously expected.

Segmental reporting

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

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

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

Estimates

The preparation of half-yearly financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these condensed consolidated half-yearly financial statements, the significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty which will be adopted in the annual statutory financial statements for the year ending 31 December 2019

Going concern

The financial statements have been prepared on a going concern basis that the Directors believe to be appropriate. Whilst the Group incurred a net loss of GBP1,298k during the period, the Directors are satisfied that sufficient cash is available to meet the Company's liabilities as and when they fall due for at least 12 months from the date of signing the half yearly report.

   2.            Taxation 

Analysis of credit in the period

 
                                 Six months   Seven months    Six months   Year ended 
                                      ended          ended         ended 
                                                                                ended 
                                     30-Nov         31-Dec        30-Nov       31-May 
                                       2019           2019          2018         2019 
                                    GBP'000        GBP'000       GBP'000      GBP'000 
                                (unaudited)    (unaudited)   (unaudited)    (audited) 
 
 UK Corporation tax 
 
 Current tax on income                    -              -             -            - 
  for the period 
 
 Research and development 
  tax in respect of prior 
  years                                   -            123             -          521 
 
 Research and development 
  tax allowances for current 
  year                                  274            320             -          400 
 
                                        274            443             -          921 
                               ------------  -------------  ------------  ----------- 
 

The effective rate of tax for the period/year is lower than the standard rate of corporation tax in the UK of 20 per cent, principally due to losses incurred by the Company.

The potential deferred tax asset relating to losses has not been recognised in the financial statements because it is not possible to assess whether there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.

   3.            Loss per share 
 
                  Six months   Seven months    Restated Six   Restated Year 
                       ended          ended    months ended 
                                                                      ended 
                      30-Nov         31-Dec          30-Nov          31-May 
                        2019           2019            2018            2019 
                 (unaudited)    (unaudited)     (unaudited)     (unaudited) 
                       Pence          Pence           Pence           Pence 
 Loss per 
  share: 
 Basic 
  and diluted         (0.96)         (0.96)          (1.24)          (1.68) 
                ------------  -------------  --------------  -------------- 
 

Loss per ordinary share is based on the Company's loss for the financial period of GBP1,302k (30 November 2018: GBP1,505k loss; 31 May 2019: GBP2,100 loss). The weighted average number of shares used in the basic calculation is 136,025,765 (31 May 2019: 125,184,218; 30 November 2018: 121,756,727).

The calculation of diluted loss per ordinary share is identical to that used for the basic loss per ordinary share. This is because the exercise of share options would have the effect of reducing the loss per ordinary share and is therefore not dilutive under the terms of International Accounting Standard 33 "Earnings per share".

   4.            Segment reporting 

Due to the startup nature of the business the Company is currently focused on building revenue streams from a variety of different markets. As there is only one manufacturing facility, and as this has capacity above and beyond the current levels of trade, there is no requirement to allocate resources to or discriminate between specific markets or products. As a result, the Company's chief operating decision maker, the Chief Executive, reviews performance information for the Company as a whole and does not allocate resources based on products or markets. In addition, all products manufactured by the Company are produced using similar processes. Having considered this information in conjunction with the requirements of IFRS 8, as at the reporting date the Board of Directors has concluded that the Company has only one reportable segment that being the manufacture and sale of carbon fibre materials and the development of technologies associated with this.

The Company considers it offers product technology namely carbon fibre re-enforced ceramic material which is machined into different shapes depending on the intended purpose of the end user.

Revenue by geographical destination is analysed as follows:

 
                     Six Months   Seven Months       Restated      Restated 
                          Ended          Ended     Six Months    Year Ended 
                                                        Ended 
                      30-Nov-19      31-Dec-19      30-Nov-18     31-May-19 
                    (Unaudited)    (Unaudited)    (Unaudited)   (Unaudited) 
                        GBP'000        GBP'000        GBP'000       GBP'000 
 United Kingdom             745            963            112           220 
 Rest of Europe              90            165            168           492 
 United States 
  of America                163            251            216           269 
 Rest of World               30             72             12            21 
---------------- 
                          1,029          1,451            509         1,002 
----------------  -------------  -------------  -------------  ------------ 
 

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END

IR DZGZZMNVGGZZ

(END) Dow Jones Newswires

February 28, 2020 02:00 ET (07:00 GMT)

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