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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Surface Transforms Plc | LSE:SCE | London | Ordinary Share | GB0002892528 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 3.45 | 3.40 | 3.50 | 3.45 | 3.45 | 3.45 | 1,098,017 | 07:34:36 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Engineering Services | 5.12M | -4.78M | -0.0198 | -1.74 | 8.34M |
From Apr 2019 to Apr 2024
TIDMSCE
RNS Number : 6471W
Surface Transforms PLC
13 February 2017
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.
13 February 2017
Surface Transforms Plc.
("Surface Transforms" or the "Company")
Half-year financial results for the six months ended 30 November 2016
Surface Transforms, (AIM:SCE) manufacturers of carbon fibre reinforced ceramic (CFRC) materials, announces its half-year financial results for the six months ended 30 November 2016.
Financial highlights:
-- Turnover decreased to GBP327k (H1-2015: GBP782k) -- Total comprehensive loss increased to GBP976k (H1-2015: GBP124k)
-- GBP306k of this difference related to late receipt of the tax credit: a tax credit of GBP356k was received in January 2017 (H1-2015: GBP306k received in November 2015)
-- Loss before tax increased to GBP976k (H1-2015: GBP430k) -- Cash at 30 November 2016 was GBP2,698k (31 May 2016: GBP4,777k)
-- Capital expenditure on property, plant and equipment of GBP680k mainly related to the new Knowsley facility
-- Increased inventory of GBP193k to GBP763k (H1-2015: GBP570k) -- Trading remains in line with management expectations
Sales and Operational Highlights
-- Production underway at the new Knowsley factory -- Post period end, first tier 2 supplier nomination to a UK automotive OEM
Financial review
Revenue for the period was GBP327k (H1-2015: GBP782k) as previously announced in the Company's 'Trading and Operations Update' on 8 December 2016.
The overall sales comparison masks significant changes in underlying mix. Sales to near OEM customers increased by GBP67k to GBP163k (H1-2015: GBP96k), whereas sales to retrofit customers fell by GBP46k to GBP164k (H1-2015: GBP210k) partially reflecting a one off sales catch up last year in H1-2015 following a previous furnace break down. However the biggest change was the absence of any sales into the race car customer in the six months to 30 November 2016 (H1-2015: GBP337k). There were also no aerospace development revenues in this half-year (H1-2015: GBP111k), as the Company's military aircraft development activity has concluded, in anticipation of series production starting in 2018.
The gross profit percentage was 61% (H1-2015: 57%), the improvement being purely a function of sales product mix. The absolute gross profit therefore fell in line with the sales volume to GBP201k (H1-2015: GBP447k). Administrative expenses rose GBP104k to GBP432k (H1-2015: GBP328k) reflecting the move to the new site and, towards the end of the half-year, the cost of running two sites. Research costs rose GBP160k to GBP750k (H1-2015: GBP590k), an increase of 27% as a result of significantly increased activity on the target OEM contracts.
The Company did not receive an R&D tax credit in the period (H1-2015: GBP306k). This was purely a timing issue as GBP356k was received in the first week of January.
As a result of the above issues, the total comprehensive loss in the period rose to GBP976k (H1-2015:GBP124k).
Cash was GBP2,698k at the half-year end (31 May 2016: GBP4,777k). This reduction during the period was in line with management expectations and mainly due to the trading loss in the period, increased capital expenditure on property, plant and equipment of GBP680k mainly related to the new Knowsley facility and increased inventory of GBP193k primarily the result of minimum order quantities on fibre raw material being delivered towards the end of the period.
Loss per share was 1.08p (H1-2015: 0.23p).
Outlook
Historically, the Company has generated increased revenues in the second half of the year, with the near equal split of sales in 2015-16 being unusual and reflecting the issues described above. In the current financial year, the Company expects to revert to the historic norm. Sales for the current financial year 2016-17 are expected to be comparable with the prior year on a like for like basis, allowing for the sales catch up, which in turn is offset by improved percentage gross margin.
Development spend will, at least, be maintained at the current higher levels, and indeed the current high cost of off site dynamometer testing and contractors to complete the VDA 6.3 work is putting that budget under strain.
Consequently, losses in 2016-17 are expected to be higher than the prior year but within the range of current market expectations.
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:
Aerospace: The airframe customer of our landing gear customer has approved and passed all the paperwork to the end use customer, US Navy Air Command (NAVAIR). This is very encouraging, albeit later than anticipated. Given previous programme delays, there is a risk of production being delayed albeit our customer has not informed us of any resultant delay in start of production and understands that formal orders should be placed during this summer. Both parties understand the issues involved and are working to meet the agreed targets. As previously notified, this contract will have a minimal contribution to this financial year but is expected to commence production in the middle of the 2017/18 financial year, reaching mature sales of GBP1.3m per annum in 2018/19.
Automotive: Including the new OEM customer described in the Company's announcement on 2 February 2017, (now described as British OEM Six) the Company is in detailed discussions with six mainstream automotive manufacturers. Overall progress is good but the rate of development between OEM's is varied:
British OEM One: In 2015 this customer informed us of their intention to purchase the Company's product and shared its Surface Transforms product introduction programme with us, by model type, over the next few years. However it is clear that their model programme timetable has already slipped by six months and the Company's assumption is that a delay of another six months is quite possible. This one-year delay is now our planning assumption.
In practice the new supplier nomination from British OEM Six has filled the short-term void in the forecast revenues. However British OEM One remains an important target customer for the Company and the Directors still believe that Surface Transforms' products will be on their new cars when they resume the new programme activity.
British OEM Two: This British luxury car customer is the sister company of German OEM Three and they are following in their wake. As a result, German OEM Three is doing the bench and dynamometer testing for the Group. Trial discs are in production for further car testing for OEM Two during the coming months. The target vehicle is expected to commence production in 2020 and assuming Surface Transforms become the nominated supplier and the production timetable is adhered to, the Company expects to generate sales of up to GBP1.0m per annum.
German OEM Three: This prestige high performance car customer is the major focus of the Company's R&D activity. A large team from the customer visited the new Knowsley site in November to review progress. They were complimentary on the site, the work on new capacity and progress towards achieving their quality standard VDA 6.3. There is one key outstanding technical requirement being addressed. Since their visit, the Company has made good progress on both understanding the technical issue and presenting a solution. The resultant new "evolved" design is under test and the Company remains confident of resolving the issue to the customer's satisfaction. The Company and customer are reviewing progress with weekly conference calls and quarterly site visits. If the work goes to plan, the target model would generate annual run rate sales of approximately GBP10m per annum starting in Q3 2019.
German OEM Four: This is a sister company of the above customer, they are sharing information with "German OEM Three" and, like British OEM Two effectively following in their wake. Sales with this customer could therefore begin in late 2020 generating sales for Surface Transforms of up to GBP3.8m per annum for the supply contract for selected new model on which discussions have to date been based.
German OEM Five: This customer is a competitor of the above three companies. Their requirements are similar i.e. capacity, VDA 6.3 and brake performance. They continue to car test and in tandem we are progressing our bench testing - and obviously without damaging any client confidentiality data - sharing what results we can with them from our wider test activity. They remain very keen to ensure that they are not "left behind" and that they secure a share of the future production capacity. The model in question is expected to commence production in mid 2019 and generating sales for Surface Transforms of up to GBP2.8m per annum on this initial model.
If we were to win both OEM Three and Five we would not have enough capacity and would need to raise funds for this extra capacity. As a reminder each new production cell in Knowsley has capacity for approximately GBP10m to GBP15m sales (dependent on disc size and mix) and there is a footprint for five production cells.
British OEM Six: The Company was extremely pleased to announce on 2 February 2017 their first nomination as a tier 2 supplier on a prestigious British OEM sports car. The Company has been working with this customer for about a year but momentum has accelerated more recently. As announced previously, the limited edition car is expected to be produced over the period from the start of 2019 to mid 2020. Including prototype and production revenues the Company expects revenues of approximately GBP1m.
This is an important strategic win for the Company, endorsing the Company's proprietary technology and providing a valuable reference point for other major OEM customers.
Knowsley Facility
Gas and Power Supplies: In effect the only substantive problem in the move has been an ongoing issue with an unacceptable gas main. This issue, whilst technically straightforward, has been frustrating. The Company has now taken over the issue from the building contractors and alternative suppliers are now being engaged.
By contrast, the Company has made excellent progress on establishing (in partnership with a specialist supplier) its own leased biomass Combined Heat and Power (CHP) plant on site. The work is expected to finish in the next few weeks. There has been minimal cash requirement for this work and the effect will be that the site's heating and lighting electricity costs at the 55k ft(2) Knowsley site will be less than at the 11k ft(2) Ellesmere Port site and, additionally, there will be an approximately 5% reduction in piece part cost of the disc from lower energy costs. These cost reductions were not in the original plan.
Move of Equipment from Ellesmere Port: Production has begun at Knowsley with just a couple of processes still being completed at Ellesmere Port. The relocation of the remaining equipment is scheduled during the next few weeks. All personnel (except those supporting final production at Ellesmere Port) have moved to Knowsley and the Company has changed its registered office. The Company expects to have completed the move by end February as planned.
New quality requirement VDA 6.3: As noted above, our potential German customer was complimentary on the progress we had already made on securing technical standard VDA 6.3 during their visit in November when they conducted a mini audit. They agreed with the Company's list of outstanding actions and since that date further good progress has been made, albeit at the cost of hiring external contractors to deal with the volume of paperwork involved in the exercise. A further review with the customer is due in early April.
New Capital Equipment: The major items of new capacity are on order and deposits paid. Regular reviews take place with the suppliers and the promised delivery dates are (within a few weeks) on plan; in particular we expect delivery of the CVI 3 furnace at the end of March and the other two major new furnaces before the end of 2017. In respect to the new machining centres, the machines themselves are "off the shelf" standard, but the tooling, whilst proven at the suppliers still requires optimisation; this will take six months, and remains in line with plan. The new ceramic MIST furnaces are still in negotiation.
Grant and Loan Income; At the end of January, against an overall grant and soft loan award of GBP500k, the Company had claimed GBP287k of which GBP103k has been paid, the remainder being not yet due but expected to be paid in the next two months. The Company expects to be able to claim the outstanding GBP212k before May 2017, payment in the next financial year, as required in our agreements. In the period, the Company concluded the final element of the further support from Knowsley Borough Council.
We expect to be completely clear of Ellesmere Port by the end of February, to have secured the new quality VDA 6.3 quality standard by midyear and be able to physically show the bulk of the new capacity to our customers and potential customers by the end of the calendar year.
Summary
The last six months has seen further significant progress on the journey of Surface Transforms from an industrial technology start up to a mainstream automotive supplier.
This has notably included the achievement of securing one of its long held ambitions of winning a supply nomination with a serious OEM car Company with a prestigious global brand.
In support of this potential growth, the Company has moved most of its operations to a site with a sales footprint in excess of GBP50m, and additionally (within this footprint) has now ordered equipment that (in combination with existing equipment) will provide capacity, when fully operational, for sales in excess of GBP15m, notwithstanding orders not yet won.
The strategic focus for Surface Transforms continues to be building on this foundation; in particular resolving the technical requirement with German OEM Three, completing the move and installing the new production cell in the Knowsley factory, whilst achieving the short term financial sales and loss targets.
The Company remains confident of achieving its potential and is optimistic over the outcome.
However I cannot conclude without recording the Board's appreciation for the outstanding contribution of all members of staff in what has been a tough, albeit exciting and successful six months. Thank you!
David Bundred
Chairman
10 February 2017
Statement of Total Comprehensive Income
For the six months ended 30 November 2016
Hot Features
Premium
Six Six
months months Year
ended ended ended
30-Nov 30-Nov 31-May
2016 2015 2016
(unaudited) (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
Revenue 327 782 1,362
Cost of sales (126) (335) (659)
------------ ------------ ----------
Gross profit 201 447 703
Administrative expenses:
Before research
costs (432) (328) (654)
Research costs (750) (590) (1,254)
------------ ------------ ----------
Total administrative
expenses (1,182) (918) (1,908)
Other operating
income - 61 84
------------ ------------ ----------
Operating loss (981) (410) (1,121)
------------ ------------ ----------
Financial income 5 - 2
Financial expenses - (20) (35)
Loss before tax (976) (430) (1,154)
Taxation 2 - 306 306
Loss for the period
after tax (976) (124) (848)
============ ============ ==========
Total comprehensive
loss for the period
attributable to
members (976) (124) (848)
------------ ------------ ----------
Loss per ordinary
share
Basic and diluted 3 (1.08p) (0.23p) (1.44p)
EBITDA (including
tax credits and
excluding share
based payments) (874) (27) (640)
Statement of Financial Position
As at 30 November 2016
As at As at As at
30-Nov 30-Nov 31-May
2016 2015 2016
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Non-current assets
Property, plant and equipment 1,242 477 627
------------- ------------- -----------
Total non-current assets 1,242 477 627
------------- ------------- -----------
Current assets
Inventories 763 380 570
Trade and other receivables 1,193 579 939
Cash and cash equivalents 2,698 525 4,777
------------- ------------- -----------
Total current assets 4,654 1,484 6,286
------------- ------------- -----------
Total assets 5,896 1,961 6,913
------------- ------------- -----------
Current liabilities
Other interest bearing loans and borrowings (18) (11) (4)
Trade and other payables (845) (449) (936)
------------- ------------- -----------
Total current liabilities (863) (460) (940)
Non-current liabilities
Other interest bearing loans and borrowings - (402) (16)
------------- ------------- -----------
Total liabilities (863) (862) (956)
Net assets 5,033 1,099 5,957
============= ============= ===========
Equity
Share capital 901 535 901
Share premium 14,370 9,186 14,359
Capital reserve 464 464 464
Retained loss (10,702) (9,086) (9,767)
Total equity attributable to equity shareholders of the Company 5,033 1,099 5,957
============= ============= ===========
Statement of Cash Flows
For the six months ended 30 November 2016
Six Months Ended Six Months Ended Year ended
30-Nov 30-Nov 31-May
2016 2015 2016
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Loss after tax for the period (976) (124) (848)
Adjusted for:
Profit on disposal of property, plant and equipment - - (16)
Depreciation charge 65 56 111
Equity settled share-based payment expenses 41 21 64
Financial expenses - 20 35
Financial income (4) - (2)
Taxation - (306) (306)
(874) (333) (962)
Changes in working capital
(Increase) in inventories (193) (63) (253)
(Increase) in trade and other receivables (221) (211) (572)
(Decrease)/increase in trade and other payables (99) 65 572
(1,387) (542) (1,215)
Taxation received - 306 306
Net cash used in operating activities (1,387) (236) (909)
Cash flows from investing activities
Acquisition of property, plant and equipment (680) (50) (265)
Proceeds from disposal of property, plant and equipment - - 26
Net cash used in investing activities (680) (50) (239)
Cash flows from financing activities
Proceeds from issue of share capital, net of expenses 11 3 5,142
Payment of finance lease liabilities - - (11)
Interest paid (23) (21) (35)
Net cash (used)in/from financing activities (12) (18) 5,096
Net decrease in cash and cash equivalents (2,079) (304) 3,948
Cash and cash equivalents at the beginning of the period 4,777 829 829
Cash and cash equivalents at the end of the period 2,698 525 4,777
Statement of Changes in Equity
For the six months to 30 November 2016
For the six months to Share
30 November 2016 Share premium Capital Retained
capital account reserve loss 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
========= ========= ========= ========= ==========
For the six months to Share
30 November 2015 Share premium Capital Retained
Capital account reserve deficit Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 May 2015 532 9,186 464 (8,983) 1,199
Loss for the period - - - (124) (124)
--------- --------- --------- --------- ----------
Total comprehensive
income for the period - - - (124) (124)
Transactions with owners,
recorded directly to
equity
Shares issued in the
year 3 - - - 3
Equity settled share
based payments - - - 21 21
--------- --------- --------- --------- ----------
Total contributions
by and distributions
to the owners 3 - - 21 24
Balance at 30 November
2015 535 9,186 464 (9,086) 1,099
========= ========= ========= ========= ==========
Share
Share premium Capital Retained
Capital account reserve deficit Total
For the year to 31 May
2016
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 May 2015 532 9,186 464 (8,983) 1,199
Loss for the year - - - (848) (848)
--------- --------- --------- --------- ----------
Total comprehensive
income for the year - - - (848) (848)
Transactions with owners,
recorded directly to
equity
Shares issued in the
year 369 5,531 - - 5,900
Cost of issue written
off to share premium - (358) - - (358)
Equity settled share
based payments - - - 64 64
--------- --------- --------- --------- ----------
Total contributions
by and distributions
to the owners 369 5,173 - 64 5,606
Balance at 31 May 2016 901 14,359 464 (9,767) 5,957
========= ========= ========= ========= ==========
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 xx February 2017.
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 2016. 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's.
These interim results for the period ended 30 November 2016, 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 2016, 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 2016 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 2017.
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, 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
As noted in the Chairman's report prior to FY2015-16 the Company has had an unequal split of sales between the two halves of the year, the near equal split of sales in 2015-16 was unusual reflecting the issues referred to in the Chairman's statement. In the current financial year the Company expects to revert to the historic norm of 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 GBP976k 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
2016 2015 2016
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
UK Corporation
tax
Current tax on - - -
income for the
period
Research and development
tax repayment - 306 306
- 306 306
----------------------------------------- ------------- -----------
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
2016 2015 2016
(unaudited) (unaudited) (audited)
Pence Pence Pence
Loss per share:
Basic and diluted (1.08) (0.23) (1.44)
------------- ------------- -----------
Loss per ordinary share is based on the Company's loss for the financial period of GBP976k (30 November 2015: GBP124k loss; 31 May 2016: GBP848k loss). The weighted average number of shares used in the basic calculation is 90,106,740 (30 November 2015: 53,183,567; 31 May 2016: 58,944,086).
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 start up nature of the business the Company is currently focussed 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 matched into different shapes depending on the intended purpose of the end user.
Revenue by geographical destination is analysed as follows:
2016 2015
GBP'000 GBP'000
United Kingdom 165 91
Rest of Europe 96 485
United States of America 57 196
Rest of World 9 10
327 782
-------- --------
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR FMGMZDGRGNZM
(END) Dow Jones Newswires
February 13, 2017 02:00 ET (07:00 GMT)
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