Preliminary results and notice of AGM

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 £361k to £1,002k (2018: £1,363k)

·    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 £1,564k (2018: £1,382k)

·    Research costs increased to £2,074k (2018: £2,002k) which has been partially offset by increased R&D tax credit of £921k (2018: £465k)

·    Other administrative expenses increased by £431k to £1,514k (2018: £1,083k) of which £150k were non-cash items, primarily share based payments

·    Loss after taxation of £2,059k (2018: £1,834k)

·    Loss per share of 1.64p (2018: 1.66p)

·    Cash used in operating activities increased by £28k to £2,196k (2018: £2,168k)

·    Cash at 31 May 2019 was £1,925k (2018: £923k)

·    Capital expenditure in the year was £175k (2018: £2,024k)

·    Raised £3.3m, 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 £400k

·    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 €11.8m contract over seven years from major German automotive OEM 5 with SOP of October 2021

·   Post year end awarded a £6m contract over three years to be fitted onto British specialist automotive company cars for OEM 6 with SOP end of calendar 2021

·    Won a £300k 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 €11.8m 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 £2m 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 £6m 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 £50m 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 £4.5m 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 £12m 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 £10m 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 £6m reaching the target capacity limit of £12m 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 £2bn, 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 £2 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 £17 million per annum which is further expandable, with the requisite capital expenditure, to £50 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 £4.5m 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 £6m of potential revenue available by the end of 2019, with the remaining £6m 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 £2m 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 £300k 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 £1,002k, 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 £2.1m (2018: £2.0m) primarily driven by testing for OEM 5 and on-going testing for OEM 3.

Other administrative expenses increased by £431k to £1,514k (2018: £1,083k) of which approx. £150k were non cash increases in depreciation and share based payment charges, and approx. £200k 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 £2.1m (2018: £1.8m) 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 £400k accrued receivable. This item is non-cash in year and will not recur in future years.

At 31 May 2019, inventory was £1.2m (2018: £0.9m). 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 £2.2m, 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 £1.9m at 31 May 2019 (2018: £0.9m). In addition to this sum is an expected R&D tax credit of over £400k (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
		£'000	£'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
		£'000	£'000		£'000	£'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   capital	Share premium account	Capital   reserve	Retained loss	Total
	£'000	£'000	£'000	£'000	£'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 capital	Share premium account	Capital      reserve	Retained loss	Total
	£'000	£'000	£'000	£'000	£'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
	£'000	£'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 £2,059k 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
	£'000	£'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
	£'000		£'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 (£)	(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

	1 June 2018	Cash Flow	Other non-cash movements	31 May 2019
	£'000	£'000	£'000	£'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