TIDMSCE
RNS Number : 9805F
Surface Transforms PLC
27 February 2018
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.
27 February 2018
Surface Transforms plc.
("Surface Transforms" or "the Company")
Half-year financial results for the six months ended 30 November
2017
Surface Transforms (AIM:SCE) manufacturers of carbon fibre
reinforced ceramic materials, announces its half-year financial
results for the six months ended 30 November 2017.
Financial highlights:
-- Revenue increased to GBP524k (H1-2016: GBP327k)
-- Loss before and after tax increased to GBP1,294k (H1-2016: GBP976k)
-- Cash at 30 November 2017 was GBP3,275k (31 May 2017: GBP1,532k)
-- Successful equity placing raising GBP3,439k (net of expenses) in the period
-- Capital expenditure on property, plant and equipment of
GBP684k (H1-2016: GBP680k) mainly related to the installation of
Production OEM cell 1
-- Inventory of GBP735k (31 May 2017: GBP507k)
Sales and Operational Highlights:
-- Small Volume Production (SVP) cell is in steady state production
-- Continuing progress on installation of Production OEM cell 1
including purchase of the ceramic infiltration furnaces (albeit
post period end cash transaction)
-- Start of production (SOP) on the Aston Martin Valkyrie
project scheduled for early 2019. Additional demand from Aston
Martin (mainly relating to dealer spares) has added an additional
GBP1m of revenue to the programme
-- Testing to satisfy OEM Three road car requirements continues
with only one product test yet to be completed; the Company still
believes it can meet the customer's requirements and expects to
conclude this testing when required during this year
-- As previously notified OEM Three and Five will conduct their
VDA 6.3 quality processes audit after the conclusion of the product
testing
-- Whilst the Company successfully completed OEM Three's testing
requirements for its racetrack car, they have changed the racetrack
cars requirements, that necessitates a re-design (and therefore
re-test) of the carbon ceramic disc. Management therefore consider
it unlikely this product will be launched in the current race
season
-- Near OEM sales were flat in the period, however the Company
now expects further growth in this market in the next two years,
particularly in the specialist US conversion segment
-- A project plan received from the Company's target airframe
customer indicates a delayed SOP of the upgraded aircraft to
January 2020. This reduces revenues by approximately GBP1.4m over
the two financial years FY 2019 and FY 2020; programme and
financial offset discussions are continuing
Financial Review:
The increase in revenue from FY 2016 has been delivered
primarily from additional sales of aftermarket products, with sales
to near OEM customers flat. Development revenues have been low in
the first half of the year but are expected to increase in the
second half as development income from the Aston Martin project
begins in earnest.
Revenue of GBP524k were GBP50k less than notified in the trading
update issue on 20 November 2017. This reflects a supply chain
disruption in the last week of the trading period that was quickly
rectified in the second half trading period and has no impact on
the expected year end numbers.
Gross profit increased to GBP286k (H1-2016: GBP201k) and gross
profit margin was 55% (H1-2016: 61%), the movement being a function
of product mix, with aftermarket kits having lower margin than
development income.
Administrative expenses rose by GBP115k to GBP547k (H1-2016:
GBP432k) primarily due to increased costs of the new site combined
with upgrades to the IT infrastructure in the business and
increased headcount.
Research expenses rose to GBP1,033k (H1-2016: GBP750k) due to
continuing focus on delivering final product to target OEM
customers. The increase was primarily due to additional salaries to
increase the available resource for these intensive programs.
An R&D tax credit of GBP464k (H1-2016: GBP356k) was received
in the last week of January 2018 outside the trading period
reported. Total loss for the period was therefore GBP1,294k
(H1-2016: GBP976k).
Cash at the end of the half-year was GBP3,275k (31 May 2017:
GBP1,532k). In the period GBP3,439k of new share capital was raised
of which GBP684k (H1-2016 GBP680k) was expended in the period on
capital equipment relating to OEM cell 1. 23,750,460 of new shares
were issued at a price of 15.5p each which increased share premium
by GBP3.2m.
Loss per share was 1.17p (H1-2016: 1.08p).
Outlook
The Company continues to expect year-end sales to be in line
with management expectations.
Research expenditure will continue at its current higher level
and the increased site costs reflect the on-going higher costs of
the new site. These increased costs are already reflected in
existing Company budgets and the Company expects to finish the year
with a loss in line with budget.
The Company's projections indicate that there is sufficient cash
to reach the point of operational cash generation in FY 2020.
Progress with potential OEM Customers
The key metric for the Company continues to be the advancement
of the game changing contracts where the current status is as
follows:
Automotive
Aston Martin Valkyrie: SOP remains early 2019 and the inclusion
of contracted dealers' spares demand has added GBP200k to FY 2019
projections and GBP800k in FY 2020. This initial spares demand is
firm and continuing on-going demand is expected thereafter,
although the quantum of the future demand is difficult to forecast
as much depends on the mix between track use and road use by the
owners.
The Company also continues to believe that there is potential to
win further models beyond the Valkyrie but it is too early to begin
detailed discussions.
German OEM Three: There are two projects underway for this
customer - volume road car and the specialist racetrack car.
In respect to the road car, there remains only one outstanding
test to be completed, even though completion of this test has been
outstanding for some time. As part of the process the Company has
been making a number of parallel changes to the product that have
now been combined into a series of "near final" discs. The Company
continues to believe that tangible engineering progress has been
achieved and that the testing will be completed in time for 2018
selection on the Customer's next product launch.
Testing had been completed for the racetrack car but the
customer has, for reasons outside the Company's control, changed
the size of a key adjacent component that requires Surface
Transforms to offer up a reduced size disc. This smaller size
requires testing and therefore it seems unlikely that the Surface
Transforms product will be introduced in the current race
season.
British OEM Two and German OEM Four: These are sister companies
of OEM 3 and will follow the engineering release of the technology
into the Group by OEM Three.
German OEM Five: has repeated its wish to use the Company's
products, the customer having completed some testing but with
further testing remaining. None of the testing is considered
onerous by the Board and our products have passed equivalent tests
in other development programmes.
Aerospace
The Company has now received a project plan from the airframe
manufacture building the target aircraft, indicating a start of
production of the upgraded aircraft in January 2020. This is a
further delay from the previously notified January 2019 date (and
two years from the original January 2018 date); it has the effect
of reducing total revenue by approximately GBP500k in FY 2019 and
GBP900k in FY 2020. The Board however remain optimistic that some
of these lost revenues will be offset by development income in what
is now effectively a re-certification programme - as the Company's
production processes, and raw material suppliers have changed, the
product will require a full re-certification. In line with normal
aerospace military practice this process will be customer funded
with reasonable profit margins.
Knowsley Facility
As a reminder the footprint of the Knowsley facility has the
potential for anticipated output of 100,000 discs in five replica
cells plus the Small Volume Production (SVP) cell. The current
planning and finance availability is focused on SVP and the first
of these cells.
Small Volume Production Cell: This cell - effectively
transferred from Ellesmere Port - can now be considered steady
state albeit with continuing potential for improvement in daily
flow rate, establishment of lean manufacturing disciplines, and
reduction in the high inventory levels. The Aston Martin contract
will be produced in the SVP cell.
OEM Cell 1: All the key technology furnaces are under final test
either in Knowsley or at the suppliers' premises. In the last six
months, the Company has purchased and is currently installing and
testing the ceramic infiltration furnaces, the final piece of the
furnace jigsaw. With all the furnaces and services in place, the
only outstanding items are the machine tools, which are "off the
shelf" with short lead times. The Company expects to achieve pre
production capability and volume capacity in the current calendar
year to facilitate "off tool" samples, the key criteria for
entering the volume production stage.
VDA 6.3 Quality Requirement: This is the audit process used by
the German OEMs to calibrate the Company's conformance to quality
processes. Both German OEM Three and German OEM Five have told the
Company that they will undertake the audit when the product testing
is complete which is currently expected to be around mid-year.
IATF 16949:2016: In parallel to German OEM activity, the British
automotive manufacturers have launched an upgrade of their quality
standard (previously TS 16949) which now broadly replicates the
German VDA standards. All British automotive companies have to
achieve this standard by September 2018. The Surface Transforms
audit of this transition is in two phases - March 2018 and May
2018. As the processes and procedures are almost identical to VDA
requirements, the Company expects to pass this audit.
Summary
Surface Transforms continues its journey from a development
company to a mainstream volume automotive supplier with a site
capable of production volumes of 100,000 discs, revenues of GBP50m
and firm and repeatable orders.
The past six months has, overall, been one of steady progress
rather than major breakthroughs. In this respect the testing on the
OEM Three product and the slow but sure installation of the new
furnaces in the OEM cell typify the frustrating pace but
nonetheless continuing progress, whereas the size of the additional
Aston Martin spares order hints at the revenue potential from this
marketplace.
The Board expects to continue this progress with news of
conclusion of the German OEM Three testing and further detail on
SOP with German OEM Five. The Board expect trading for the full
year will be in line with current management expectations.
However I cannot conclude without recording the Board's
appreciation of the outstanding contribution by all members of
staff. Thank You!
David Bundred
Chairman
27 February 2018
.
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 / Richard Salmond (Corporate Finance)
Alex Pollen (Sales)
finnCap Ltd (Joint-Broker) +44 20 7220 0500
Ed Frisby / Giles Rolls (Corporate Finance)
Stephen Norcross / Richard Chambers (Corporate Broking)
For further Company details, visit www.surfacetransforms.com
Statement of Total Comprehensive Income
For the six months ended 30 November 2017
Six months Six months Year
ended ended ended
30-Nov 30-Nov 31-May
2017 2016 2017
(unaudited) (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
Revenue 524 327 702
Cost of sales (238) (126) (274)
------------ ------------ ----------
Gross profit 286 201 428
Administrative
expenses:
Before research
costs (547) (432) (1,045)
Research costs (1,033) (750) (1,916)
------------ ------------ ----------
Total administrative
expenses (1,580) (1,182) (2,961)
Other operating - - -
income
------------ ------------ ----------
Operating loss (1,294) (981) (2,533)
------------ ------------ ----------
Financial income - 5 5
Financial expenses - - -
Loss before tax (1,294) (976) (2,528)
Taxation 2 - - 356
Loss for the period
after tax (1,294) (976) (2,172)
============ ============ ==========
Total comprehensive
loss for the period
attributable to
members (1,294) (976) (2,172)
------------ ------------ ----------
Loss per ordinary
share
Basic and diluted 3 (1.17) (1.08p) (2.41p)
------------ ------------ ----------
EBITDA (including
tax credits and
excluding share-based
payments*) (1,107) (874) (640)
* EBITDA numbers, including that for the year ended 31 May 2017,
are unaudited
Statement of Financial Position
As at 30 November 2017
As at As at As at
30-Nov 2017 30-Nov 2016 31-May 2017
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Non-current assets
Property, plant and equipment 2,962 1,242 2,415
Intangibles 136 - 136
-------------- -------------- ------------
Total non-current assets 3,098 1,242 2,551
-------------- -------------- ------------
Current assets
Inventories 735 763 507
Trade and other receivables 510 1,193 365
Cash and cash equivalents 3,275 2,698 1,532
-------------- -------------- ------------
Total current assets 4,520 4,654 2,404
-------------- -------------- ------------
Total assets 7,618 5,896 4,955
-------------- -------------- ------------
Current liabilities
Other interest-bearing loans and borrowings (2) (18) (12)
Trade and other payables (1,024) (845) (685)
-------------- -------------- ------------
Total current liabilities (1,026) (863) (697)
Non-current liabilities
Other interest-bearing loans and borrowings (294) - (352)
Government Grants (196) - -
-------------- -------------- ------------
Total liabilities (1,516) (863) (1,049)
Net assets 6,102 5,033 3,906
============== ============== ============
Equity
Share capital 1,140 901 903
Share premium 17,592 14,370 14,390
Capital reserve 464 464 464
Retained loss (13,094) (10,702) (11,851)
Total equity attributable to equity shareholders of the Company 6,102 5,033 3,906
============== ============== ============
Statement of Cash Flow
For the six months to 30 November 2017
Six Months Ended Six Months Ended Year ended
30-Nov 30-Nov 31-May
2017 2016 2017
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Loss after tax for the period (1,294) (976) (2,172)
Adjusted for:
Profit on disposal of property, plant and equipment - - -
Depreciation charge 137 65 145
Equity settled share-based payment expenses 51 41 88
Financial expenses - - -
Financial income - (4) (5)
Taxation - - (356)
(1,106) (874) (2,300)
Changes in working capital
(Increase)/decease in inventories (228) (193) 63
(Increase)/decrease in trade and other receivables (145) (221) 579
(Decrease)/increase in trade and other payables 339 (99) 82
(34) (1,387) (1,576)
Taxation received - - 356
Net cash used in operating activities (1,140) (1,387) (1,220)
Cash flows from investing activities
Acquisition of property, plant and equipment (684) (680) (2,075)
Proceeds from disposal of property, plant and equipment - - 27
Capital Government Grants Received 55 - -
Net cash used in investing activities (629) (680) (2,048)
Cash flows from financing activities
Proceeds from issue of share capital, net of expenses 3,439 11 33
Payment of finance lease liabilities (10) - (10)
Proceeds from other loans 83 - -
Interest paid - (23) -
Net cash from/(used in) financing activities 3,512 (12) 23
Net increase/(decrease) in cash and cash equivalents 1,743 (2,079) (3,245)
Cash and cash equivalents at the beginning of the period 1,532 4,777 4,777
Cash and cash equivalents at the end of the period 3,275 2,698 1,532
Statement of Changes in Equity
For the six months to 30 November 2017
For the six months to Share
30 November 2017 Share premium Capital Retained
capital account reserve loss Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 May 2017 903 14,390 464 (11,851) 3,906
Loss for the period - - - (1,294) (1,294)
--------- --------- --------- --------- ----------
Total comprehensive
income for the period - - - (1,294) (1,294)
Transactions with owners,
recorded directly to
equity
Shares issued in the
year 214 3,225 - - 3,439
Equity settled share-based
payments - - - 51 51
--------- --------- --------- --------- ----------
Total contributions
by and distributions
to the owners 214 3,225 - 51 3,490
Balance at 30 November
2017 1,117 17,615 464 (13,094) 6,102
========= ========= ========= ========= ==========
For the six months to Share
30 November 2016 Share premium Capital Retained
Capital account reserve deficit Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 May 2016 901 14,359 464 (9,767) 5,957
Loss for the period - - - (976) (976)
--------- --------- --------- --------- ----------
Total comprehensive
income for the period - - - (976) (976)
Transactions with owners,
recorded directly to
equity
Shares issued in the
year - 11 - - 11
Equity settled share
based payments - - - 41 41
--------- --------- --------- --------- ----------
Total contributions
by and distributions
to the owners - 11 - 41 52
Balance at 30 November
2016 901 14,370 464 (10,702) 5,033
========= ========= ========= ========= ==========
Share
Share premium Capital Retained
Capital account reserve deficit Total
For the year to 31 May
2017
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 May 2016 901 14,359 464 (9,767) 5,957
Loss for the year - - - (2,172) (2,172)
--------- --------- --------- --------- ----------
Total comprehensive
income for the year - - - (2,172) (2,172)
Transactions with owners,
recorded directly to
equity
Shares issued in the
year 2 31 - - 33
Cost of issue written
off to share premium - - - - -
Equity settled share-based
payments - - - 88 88
--------- --------- --------- --------- ----------
Total contributions
by and distributions
to the owners 2 31 - 88 121
Balance at 31 May 2017 903 14,390 464 (11,851) 3,906
========= ========= ========= ========= ==========
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 27 February 2018.
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 May.
These interim condensed financial statements are for the six
months to 30 November 2017. They have not been prepared in
accordance with IAS 34, Interim Financial Reporting which 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 2017,
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 2017, 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 2017 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 May 2018.
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 May
Seasonality of operations
The Company expects to revert to the historic norm of unequal
split of sales between the two halves of the year with higher sales
in the second half of the year.
Going concern
The financial statements have been prepared on a going concern
basis which the Directors believe to be appropriate. Whilst the
Group incurred a net loss of GBP1,294k 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 Six months Year ended
ended ended ended
30-Nov 30-Nov 31-May
2017 2016 2017
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
UK Corporation
tax
Current tax on - - -
income for the
period
Research and development
tax repayment - - 356
- - 356
-------------- ----------------------------------------- -----------
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 Six months Year
ended ended ended
30-Nov 30-Nov 31-May
2017 2016 2017
(unaudited) (unaudited) (audited)
Pence Pence Pence
Loss per share:
Basic and diluted (1.17) (1.08) (2.41)
------------- ------------- -----------
Loss per ordinary share is based on the Company's loss for the
financial period of GBP1,294k (30 November 2016: GBP976k loss; 31
May 2017: GBP2,172k loss). The weighted average number of shares
used in the basic calculation is 110,071,506 (31 May 2017:
90,145,921; 30 November 2016: 90,106,740).
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 ended Six months ended
30 Nov 2017 30 Nov 2016 Year ended
(unaudited) (unaudited) 31 May 2017 (audited)
GBP'000 GBP'000 GBP'000
United Kingdom 132 165 322
Rest of Europe 113 96 189
United States of America 175 57 191
Rest of World 104 9 -
----------------- ----------------- ------------------------
524 327 702
----------------- ----------------- ------------------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
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