REG - Surface Transforms - Interim Results
05/09/2022 07:00
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RNS Number : 1872Y Surface Transforms PLC 05 September 2022
The information contained within this announcement is deemed by the Company to
constitute inside information stipulated under the Market Abuse Regulation
(EU) No. 596/2014 as it forms part of UK domestic law by virtue of the
European Union (Withdrawal) Act 2018. Upon the publication of this
announcement via the Regulatory Information Service, this inside information
is now considered to be in the public domain.
5 September 2022
Surface
Transforms plc
("Surface Transforms" or "the Company")
Interim results for the six months ended 30 June 2022
Surface Transforms (AIM: SCE) manufacturers of carbon fibre reinforced ceramic
automotive brake discs, announces its interims results for the six months
ended 30 June 2022.
Financial highlights
· Revenue increased 137% to £2.9m (H1-2021: £1.2m)
· Cash at 30 June 2022 was £6.7m (Dec 2021: £13.0m)
· Gross profit increased 129% to £1.7m (H1-2021: £0.7m)
· Administrative expenses increased 45% to £4.2m (H1-2021: £2.9m),
primarily in preparation of sales growth expected in H2-2022
· Loss before tax increased to £2.5m (H1-2021: £2.2m)
· Capital expenditure on property, plant and equipment was £2.8m
(H1-2021: £0.8m)
· Profit guidance maintained for full year 2022 and upgrades for 2023
to 2025
Sales and operational highlights
· Commenced series production with OEM 8, Aston Martin Valkyrie and
Koenigsegg Jesko, the volume effects of which will be seen in H2-2022
· Awarded new contract with existing customer, OEM 8 having a contract
value of approximately £100m, replacing the previous contract valued at
£27.5m
· Additionally, post balance sheet date, announced a £13m lifetime
value contract win with a new battery electric vehicle customer OEM 9
· Contracted sales order book now approximately £190m (lifetime value)
· Prospective contract pipeline ("PCP") now approximately £400m
(lifetime value) in addition to £190m contracted sales order book
· Completed phase one of the capacity installation at Knowsley bringing
sales capacity to £20m p.a.
· Ordered all the equipment for phase two capacity plan that will bring
total sales capacity to £50m p.a. in early 2023 thereby improving short term
production resilience
· Fixed price energy contracts protect gross margin until Q2 of 2023.
Thereafter significantly more efficient new furnaces reduce unit energy
consumption offsetting cost increases
Outlook
The commencement of OEM 8 series monthly volumes, even if slightly later than
originally planned, brings Surface Transforms into profitability for the
financial year ending 31 December 2022. Assisted by higher development income,
the Company was also profitable in June and July.
The financial impact of this small delay in OEM 8 start of production ("SOP")
is offset by higher than forecast development revenues with other customers.
As a result, guideline profitability remains unchanged for 2022 even though
sales guidance is now expected to be approximately £1.5m below previous
expectations.
Moreover, looking forward to the three years 2023 to 2025, and having
concluded volume discussions with OEM 8, the Board is very pleased to increase
sales guidance in these years by approximately 10% p.a., almost wholly
attributable to OEM 8. There are some offsetting costs - approximately £0.8m
p.a. reflecting additional production overheads to support sales growth; the
overall effect is to upgrade forecast profitability for 2023 to 2025.
The Company will also benefit from the super deduction scheme that will allow
£15m of accelerated tax allowances, which when combined with the Company's
carry forward losses will ensure that even when profitable and based upon
existing contracted values the Company will not be paying corporation tax
until after 2025.
Financial Review
Revenue in the period rose 137% to £2.9m driven by increased sales to OEM
customers, with a significant increase in development revenue to these same
customers. In addition, steady growth to near OEM and retrofit customers
boosted revenue.
Gross profit increased to £1.7m however there was deterioration of 2
percentage points in gross margin due to the higher proportion of
subcontracted testing which carries a lower margin than other development
income. It should be noted however that after the delivery of the 2
dynamometers the Company has on order, future testing margins for OEM
customers will be closer to usual development margins. The external forces of
higher energy costs had no impact on Surface Transforms as the Company has
fixed price contracts that continue onto May 2023. Thereafter new furnaces due
for delivery by Q1 2023 significantly reduce unit energy consumption thereby
offsetting external cost increases.
Administrative costs, before research and development costs, rose 27% to
£1.6m (H1-2021: £1.3m) driven in the main by salaries and increased
depreciation. This was offset by a forex gain of £0.2m resulting from the
decision to purchase dollars against expected furnace commitments. Research
and development costs increased 59% to £2.5m (H1-2021: £1.6m), primarily
driven by salaries and an increase in material usage as part of the acceptance
process for new furnaces.
Planned capital expenditure of £2.8m occurred in the period being
predominately payments for furnaces either under construction or delivered.
Cash at the period end was £6.7m with £3.1m held in irrevocable letters of
credit. To this should be added £0.7m of an R&D tax credit received post
balance sheet date. The Company remains in a net cash position of £5.5m
(H1-2021: £16.9m).
Progress with potential OEM customers
OEM series production
Having won contracts in the period 2018 to 2021, the Company is now in series
production with OEM 8, Aston Martin Valkyrie and Koenigsegg Jesko. Delays in
SOP dates is a universal challenge across all customers. Accordingly, for our
own planning we take a more prudent view on customer SOP dates. Nonetheless,
when in production, we remain confident that forecast future revenue streams
are de risked as volumes have historically all been in line with, or better
than, guidance provided by the OEMs; a generic characteristic of the luxury
car segment in which we operate. Indeed, as noted above, following our recent
discussions with OEM 8, including the increase in the lifetime value of the
contract, we are now increasing guidance on the Company's expected sales
through to 2025.
The next customer SOP will be with OEM 5 in Q1 2023 on a contract with a
lifetime value of €11m.
OEM new contract wins
In the sales guidance of the Company, only contracts won and contracted are
included as our order book. When converting these lifetime value awards to
annual forecasts, the Company now includes a contingency for delays against
customer SOP dates.
The Company's contracted order book rose from £115m in December 2021 to
£180m in June 2022, and approximately £190m as at the date of this
statement.
In March 2022, the Company announced that it had signed a new contract with
its existing customer, OEM 8 with a contract value of approximately £100m.
This contract replaced the previously announced contract from September 2020,
valued at approximately £27.5m. This increased contract value of over
£70m was driven by both significantly increased demand for the existing model
and the contract being extended to 2027.
Post balance sheet date, the Company won a £13m contract award with OEM 9.
This new customer is a "disruptor" entrant to the Battery Electrical Vehicle
(BEV) market.
The Company continues to expect to be able to announce at least one
significant new contract in the remainder of 2022.
OEM prospective contract pipeline ("PCP")
In this category, the Company only includes active development programmes,
where there is a known model, with realistic expected volumes, a customer SOP
date, engineering activity and meaningful commercial discussions. On these
criteria, the PCP contains programmes with OEM 1, OEM 5, OEM 6, OEM 7, OEM 8,
OEM 9, and OEM 10.
In addition to the £190m contracted order book noted above the Company has a
PCP of £400m lifetime value sales; on average the contracts are now normally
5 years and typically enter production 2 years after contract win.
These prospective contracts are almost all with existing customers and are
described as "carry-over" from a previously won contract onto another vehicle
in the customers' range. The prospect of winning carry-over is higher than a
new product with a new customer as most of the engineering sign off has been
done and generally pricing is broadly agreed. The high proportion of
carry-over in our PCP gives confidence, but not certainty, of converting the
pipeline into orders. The biggest risk is of course, that the programme itself
gets cancelled as happened with an OEM 5 programme during the COVID pandemic,
but we are protected to a certain extent against this given the number of
different OEMs and models now comprising our PCP.
We are in discussions with other new customers, but it is premature to include
these prospects in our planning.
Self-evidently, winning even a portion of this PCP would strain current
capacity limits and the Board is therefore modelling various options in
response to this issue.
OEM Business Development KPIs
As part of the process of measuring progress on the above the Company has
agreed upon several business development KPIs. Using March 2021 as the
comparator the KPIs show the progress that has been made by the Company up to
date:
o 3 contracts in series compared with zero in March 2021
o 10 contracted models compared with 5 in March 2021
o £190m order book compared with £43m in March 2021
o 4 carry-over contracts compared with 1 in March 2021
o 5-year average contract life compared with 3.8 in March 2021
o 6 contracted OEMs compared with 4 in March 2021
o £400m PCP compared with £164m in March 2021
Retrofit and Near OEM
Retrofit sales are fitment of our discs onto already registered cars replacing
either the in-situ grey iron, or not infrequently, our competitor's carbon
ceramic ("CC") discs. Near OEM sales are to several very low volume specialist
manufacturers, some of whom make less than ten cars per year. Sales into these
segments have been the bedrock of Surface Transforms over the past ten years.
Whilst the segment will ultimately be dwarfed by the many times larger OEM
segment, it remains important to short term profitability and cash generation.
It is therefore encouraging to report that sales in the period in this segment
rose to £1.3m compared with £0.8m in H1-2021.
Progress on Operations
Progress on OEM 8 production: Throughout the first half of the year the
Company has progressively increased its output rate to meet the volume
requirements of OEM 8, a task that has not been without its challenges but has
not resulted in any abnormal launch customer situations. Now that the Company
is in production the task is to get ahead of the customer's daily needs.
Phase 2 capacity installation: The current site sales capacity is £20m p.a.
We will be selling at this monthly run rate in the second half of 2022, much
earlier than expected because of the increased requirements from OEM 8 and
thus leaving less than planned manufacturing resilience. In February 2021 the
Board anticipated the need for more 2023 capacity, albeit on lower sales
projections and raised £20m to install that additional capacity - then
described as Production Cell 2 - to bring total site capacity to £35m sales
p.a. As a result of a new and enhanced manufacturing strategy, this second
phase will now actually deliver a site sales capacity of £50m p.a. at no
extra cost, reflecting both a revised site plan and a productive partnership
with our furnace supplier partners. The Company has ordered all the plant
required in the plan and expects completion progressively up to the first half
of 2023.
This £50m p.a. sales capacity is sufficient for the expected sales in 2023
but tests resilience towards the end of the year. Thereafter, both based on
expected wins from our PCP list and allowing for our need for resilience, we
must plan for monthly run rate demand being more than this capacity in the
next 12 to 18 months.
Cost Pressures and Cost Reductions: The significant increase in gas and
electricity costs is obviously a concern for all manufacturing companies but,
in combination with long standing cost reduction projects, the overall impact
to Surface Transforms will be to stabilise costs rather than reduce margins.
This fortunate situation arises from the fact that reducing gas and
electricity consumption has been a key feature of our ESG goals over the past
several years and an important element of our phase 2 capacity plan. The
subsequent gas and electricity usage reduction projects are therefore now
protecting margin rather than improving it. Previous guidance had not included
these cost reductions benefits.
When markets return to normality, we expect these efficiencies will be
manifested as cost reductions.
Progress on Environmental Social and Governance
The Company continues to extend its ESG credentials particularly on electrical
vehicles ("EV") as well as internal combustion engine vehicles ("ICE"). Weight
reduction is an ever-present need for range extension on EVs whilst on ICEs
the weight reduction reduces carbon emissions through lower fuel consumption.
Additionally, CC discs significantly reduce brake dust particles being
released into the atmosphere and watercourse, an issue of increasing interest
to regulators. Finally, CC discs materially reduce the prospect of galvanic
corrosion, a safety concern for grey iron discs on EVs.
However, the Company is seeking to do more than rely on our product benefits
to achieve its ESG goals. In the reporting period ESG activities included:
Environment
· Regular measurement of progress against several sustainability
criteria selected by the Board
· Carbon footprint reduction set as one of the key criteria in the
selection of the Company's furnace partner's technology
· As part of our determination to be a good neighbour, the Company
installed continuous emission measuring equipment that exceeds regulatory
requirements
· Progress on the plan to build a Combined Heat and Power Plant
Social
· Providing well paid employment opportunities in one of the most
deprived boroughs in the country
· Committing to no employee to be paid below living wage
· Continued to deepen the Company's relationships with the local
community
· Active participation in the local authority apprentice scheme
· Beginning a graduate apprentice scheme in September 2022
· Discussions with local schools and technical colleges to create
partnerships and improve mutual understanding
Governance and Board Changes
· Continued the process of refreshing board membership, begun in 2021.
In April 2022 the Board announced the appointment of Ian Cleminson. Ian is
currently Executive Vice President and Chief Financial Officer of Innospec
Inc., an international specialty chemical business employing 1900 personnel,
in 23 countries with sales of over $1.5 billion and quoted on the US NASDAQ
exchange with a market capitalisation of over $2 billion.
· Post balance sheet, in August 2022 Richard Gledhill announced his
wish to retire with effect from October 2022. Richard has been a board member
since 2009 and the Board thanks him for his considerable contribution over
these years and wish him well in his well-deserved retirement.
Summary
2022 is the point at which the hard work of the past decade is being
successfully converted to Company profitability. The Company is now in series
production with three OEMs whilst at the same time both winning new contracts
and significantly expanding the PCP. We continue to maintain profitability
guidance for 2022 and are upgrading guidance for the following 3 years.
Our £190m order book is complemented by a £400m PCP. The near-term issue is
capacity, whilst maintaining sufficient resilience and the Board is currently
modelling options to address this.
These are exciting times for Surface Transforms.
Finally, I would like to conclude by recording the Board's appreciation of the
outstanding contribution by all members of the team. Thank You!
David Bundred
Chairman
For enquiries, please contact:
Surface Transforms
plc
+44 151 356 2141
David Bundred, Chairman
Kevin Johnson, CEO
Michael Cunningham CFO
Zeus (Nominated Advisor and Joint Broker)
+44
203 829 5000
David Foreman / Dan Bate / James Edis (Investment Banking)
Dominic King (Corporate Broking)
finnCap Ltd (Joint-Broker)
+44 20 7220 0500
Ed Frisby / Abigail Kelly (Corporate Finance)
Richard Chambers / Barney Hayward (ECM)
About Surface Transforms
Surface Transforms plc. (AIM:SCE) develop and produce carbon‐ceramic
material automotive brake discs. The Company is the UK's only manufacturer of
carbon‐ceramic brake discs, and only one of two mainstream carbon ceramic
brake disc companies in the world, serving customers that include major OEMs
in the global automotive markets.
The Company utilises its proprietary next generation Carbon Ceramic Technology
to create lightweight brake discs for high‐performance road and track
applications for both internal combustion engine and electric vehicles. While
competitor carbon‐ceramic brake discs use discontinuous chopped carbon
fibre, Surface Transforms interweaves continuous carbon fibre to form a 3D
matrix, producing a stronger and more durable product with improved heat
conductivity compared to competitor products; this reduces the brake system
operating temperature, resulting in lighter and longer life components with
superior brake performance. These benefits are in addition to the benefits of
all carbon‐ceramic brake discs vs. iron brake discs: weight savings of up to
70%, longer product life, consistent performance, reduced brake pad dust and
corrosion free.
For additional information please visit www.surfacetransforms.com
Statement of Total Comprehensive Income
for the 6 months ended 30 June 2022
Six Months Six Months Year
Ended Ended Ended
30-Jun-22 30-Jun-21 31-Dec-21
Unaudited Unaudited Audited
Revenue 4 2,857 1,207 2,369
Cost of sales (1,143) (459) (821)
Gross profit 1,714 747 1,548
Other Income 24 11 24
Administrative expenses:
Before research and development costs (1,626) (1,281) (2,432)
Research and development costs (2,549) (1,607) (3,405)
Total administrative expenses (4,175) (2,888) (5,837)
Operating loss before non recurring items (2,437) (2,130) (4,265)
Non-recurring items - (6) (180)
Financial income 1 - -
Financial expenses (82) (56) (134)
Loss before tax (2,519) (2,192) (4,579)
Taxation 2 348 277 627
Loss for the year after tax (2,171) (1,915) (3,952)
Total comprehensive loss for the year attributable to members (2,171) (1,915) (3,952)
Loss per ordinary share
Basic and diluted 3 (1.11)p (1.03)p (2.08)p
Statement of Financial Position
As at 30 June 2022
Six Months Six Months Year
Ended Ended Ended
30-Jun-22 30-Jun-21 31-Dec-21
£'000 £'000 £'000
Unaudited Unaudited Audited
Non-current assets
Property, plant and equipment 11,325 6,136 9,403
Intangibles 1,018 333 577
12,343 6,469 9,980
Current assets
Inventories 2,315 724 1,338
Trade and other receivables 987 1,388 376
Other receivables 2,403 - 1,714
Cash and cash equivalents 6,719 17,197 12,966
12,424 19,309 16,394
Total assets 24,767 25,778 26,374
Current liabilities
Other interest bearing loans and borrowings (211) (75) (325)
Lease liabilities (299) (225) (279)
Trade and other payables (2,765) (1,061) (1,990)
(3,274) (1,362) (2,594)
Non-current liabilities
Government grants (194) (200) (200)
Lease liabilities (1,402) (1,077) (1,449)
Other interest bearing loans and borrowings (1,054) (257) (1,239)
Total liabilities (5,925) (2,896) (5,482)
Net assets 18,842 22,882 20,892
Equity
Share capital 1,954 1,951 1,952
Share premium 41,469 41,436 41,446
Capital reserve 464 464 464
Retained loss (25,044) (20,971) (22,970)
Total equity attributable to equity shareholders of the company 18,842 22,880 20,892
Statement of Cash Flows
for the 6 months ended 30 June 2022
Six Months Six Months Year
Ended Ended Ended
30-Jun-22 30-Jun-21 31-Dec-21
£'000 £'000 £'000
Unaudited Unaudited Audited
Cash flow from operating activities
Loss after tax for the year (2,171) (1,915) (3,952)
Adjusted for:
Depreciation and amortisation 441 312 671
Equity settled share-based payment expenses 95 60 96
Foreign exchange (gains)/losses (210) 28 24
Financial expense 82 56 134
Financial income (1) - -
Loss on disposal of property, plant and equipment - 6 6
Taxation (348) (277) (627)
(2,112) (1,729) (3,648)
Changes in working capital
Decrease/(increase) in inventories (977) (149) (763)
Decrease/(increase) in trade and other receivables (951) (33) (962)
Increase/(decrease) in trade and other payables 775 87 1,070
(3,265) (1,825) (4,303)
Taxation received - - 577
Net cash used in operating activities (3,265) (1,825) (3,726)
Cash flows from investing activities
Acquisition of tangible and intangible assets (2,751) (823) (3,949)
Proceeds from disposal of property, plant, and equipment - 2 2
Net cash used in investing activities (2,751) (821) (3,947)
Cash flows from financing activities
Proceeds from issue of share capital, net of expenses 24 19,059 19,070
Payment of finance lease liabilities (80) (45) (156)
Proceeds from long-term loans - - 1,000
Payments of long-term loans (303) (1) (175)
Interest paid (82) (56) (134)
Net cash generated from financing activities (441) 18,956 19,605
Net (decrease)/increase in cash and cash equivalents (6,457) 16,310 11,932
Foreign exchange gains/(losses) 210 (28) (24)
Cash and cash equivalents at the beginning of the period 12,966 1,058 1,058
Cash and cash equivalents at the end of the period 6,719 17,340 12,966
Statement of changes in equity
For the six months ended 30 June 2022
Share capital Share premium account Capital reserve Retained loss Total
£'000 £'000 £'000 £'000 £'000
Balance as at 31 December 2021 1,952 41,446 464 (22,970) 20,892
Comprehensive income for the year
Loss for the year - - - (2,171) (2,171)
Total comprehensive income for the year - - - (2,171) (2,171)
Transactions with owners, recorded directly to equity
Share options exercised 2 22 - - 24
Equity settled share based payment transactions - - - 96 96
Total contributions by and distributions to the owners 2 22 - 96 120
Balance at 30 June 2022 1,954 41,469 464 (25,045) 18,841
Statement of changes in equity
For the six months ended 30 June 2021
Share capital Share premium account Capital reserve Retained loss Total
£'000 £'000 £'000 £'000 £'000
Balance as at 31 December 2020 1,549 22,779 464 (19,114) 5,678
Comprehensive income for the year
Loss for the year - - - (1,915) (1,915)
Total comprehensive income for the year - - - (1,915) (1,915)
Transactions with owners, recorded directly to equity
Shares issued in the year 400 19,600 - - 20,000
Share options exercised 2 29 - - 31
Cost of issue to share premium - (973) - - (973)
Equity settled share based payment - - - 60 60
transactions
Total contributions by and distributions to the owners 402 18,656 - 60 19,118
Balance at 30 June 2021 1,951 41,436 464 (20,969) 22,882
Statement of changes in equity
For the 12 months ended 31 December 2021
Share capital Share premium account Capital reserve Retained loss Total
£'000 £'000 £'000 £'000 £'000
Balance as at 31 December 2020 1,549 22,779 464 (19,114) 5,678
Comprehensive income for the year
Loss for the year - - - (3,952) (3,952)
Total comprehensive income for the year - - - (3,952) (3,952)
Transactions with owners, recorded directly to equity
Shares issued in the year 400 19,600 - - 20,000
Share options exercised 3 38 - - 41
Cost of issue to share premium - (971) - - (971)
Equity settled share based payment transactions - - - 96 96
Total contributions by and distributions to the owners 403 18,667 - 96 19,166
Balance at 30 December 2021 1,952 41,446 464 (22,970) 20,892
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 5
September 2022.
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 (£) which is also the functional currency. The Company's
accounting reference date is 31 December.
These interim condensed financial statements are for the six months to 30 June
2022. They have not been prepared in accordance with IAS 34, Interim Financial
Reporting that is not mandatory for UK AIM listed companies, in the
preparation of this half-yearly financial report. While the financial
information included has been prepared in accordance with the recognition and
measurement criteria of International Financial Reporting Standards (IFRS), as
adopted by the European Union (EU), these interim results do not contain
sufficient information to comply with IFRS.
These interim results for the period ended 30 June 2022, 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 December
2021, 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 June 2022 are in accordance with the recognition
and measurement criteria of IFRS as adopted by the EU and are consistent with
those which will be adopted in the annual statutory financial statements for
the year ending 31 December 2022.
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
£2,171k during the period 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 authorising 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.
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 interim report and accounts.
Leases and right of use assets
The Company assesses whether a contract is or contains a lease at inception of
the contract. A lease conveys the right to direct the use and obtain
substantially all the economic benefits of an identified asset for a period of
time in exchange for consideration.
A right of use asset and corresponding lease liability are recognised at
commencement of the lease. The lease liability is measured at the present
value of the lease payments, discounted at the rate implicit in the lease, or
if that cannot be readily determined, at the lessee's incremental borrowing
rate specific to the term, country, currency and start date of the lease.
The lease liability is subsequently measured at amortised cost using the
effective interest rate method. The right of use asset is initially measured
at cost, comprising: the initial lease liability; any lease payments already
made less any lease incentives received; initial direct costs. The right of
use asset is subsequently depreciated on a straight-line basis over the
shorter of the lease term or the useful life of the underlying asset. The
right of use asset is tested for impairment if there are any indicators of
impairment.
Leases of low value assets and short-term leases of 12 months or less are
expensed to the income statement, as are variable payments dependent on
performance or usage, 'out of contract' payments and non-lease service
components.
Segmental reporting
Due to the 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 have 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 differing shapes
depending on the intended purpose of the end user.
Critical accounting estimates and judgements
The preparation of financial statements in conformity with adopted IFRSs
requires management to make judgements, estimates and assumptions that affect
the application of policies and reported amounts of assets and liabilities,
income, and expenses. In considering key judgements, management have
considered revenue recognised over time as judgement however this is not
material in current period. See revenue recognition accounting policy for
further details.
Key judgements assessed by management are as follows:
Research and development expenditure
The Board considers the definitions of research and development costs as
outlined in IAS 38: Intangible Assets when determining the correct treatment
of costs incurred. Where such expenditure is technically and commercially
feasible, the Company intends and has the technical ability and sufficient
resources to complete development, future economic benefits are probable and
if the Company can measure reliably the expenditure attributable to the
intangible asset it is treated as development expenditure and capitalised on
the statement of financial position.
In considering whether an item of expenditure meets these criteria, the Board
applies judgement in determining when the items are technically and
commercially feasible.
Deferred tax
Judgement is required to determine the amount of deferred tax assets that can
be recognised, based upon the likely timing and level of future taxable
profits together with an assessment of the effect of future tax planning
strategies. At present management have not recognised deferred tax assets
above the value of the deferred tax liability recognised, on the basis that
future taxable profits are possible, not probable.
Management do not consider there to be any significant estimates included in
the accounts which have a significant risk of causing a material adjustment to
carrying amount of assets and liabilities within the next financial year.
Revenue recognition
Revenue arises primarily from the provision of carbon ceramic brake discs.
To determine whether to recognise revenue, the company follows a 5-step
process:
1. Identify the existence of a contract with a customer
2. Identify the separable performance obligations
3. Determine an appropriate transaction price for the contract
4. Allocate the transaction price to the performance obligations
5. Recognise revenue either at a point in time, or over time, dependent on how
the obligation is satisfied.
The majority of revenue is currently recognised at a point in time, when the
control of the goods has passed to the buyer (usually on dispatch of the
goods). These contracts contain only one performance obligation being the
provision of the specified goods.
The Company has entered contracts (notably OEM 8), which have a number of
separable elements included as part of the provision of pre-production
services to the customer. For such contracts where it has been determined
that a good or service is being transferred, the performance obligations which
are capable of being distinct must first be identified and then an assessment
made of whether the identified performance obligations are distinct in the
context of the contract. Judgement is exercised in making this assessment and
is driven by what the customers expectation of goods and services to be
received are.
When transferring a good or service to the customer the revenue recognition
point is determined based on whether the control of the good or service is
transferred over time or at a point in time. Where the customer receives and
consumes benefits simultaneously over the period of the performance revenue is
recognised over time whereas when the service is transferring a good at a
point in time the revenue is recognised at that time. Where revenue is
recognised on an over time basis, the Company uses a percentage of completion
model to recognise the appropriate revenue in the year. This percentage of
completion is a judgement based on time booked to the contract.
2. Taxation
Analysis of credit in the period
Six months Six months Year
ended ended ended
30-Jun 30-Jun 31-Dec
2022 2021 2021
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
UK Corporation tax
Adjustment in respect of prior years' R&D tax allowance - (23) 14
R&D tax allowance for current period 348 300 600
348 277 614
The effective rate of tax for the period/year is lower than the standard rate
of corporation tax in the UK of 20%, 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 ended 30-Jun 2022 Six months ended 30-Jun 2021 Year ended 31-Dec 2021
Basic (unaudited) (unaudited) (audited)
Loss after tax (£) (2,171,000) (1,915,000) (3,952,000)
Weighted average number of shares (No. of shares) 195,311,933 185,204,922 190,215,345
Loss per share (pence) (1.11p) (1.03p) (2.08p)
Loss per ordinary share is based on the Company's loss for the financial
period of £2,171k (30 June 202: £1,915kloss; 31 December 2021: £3,952k
loss). The weighted average number of shares used in the basic calculation is
195,311,933 (30 June 2021: 185,204,922; 31 December 2021: 190,215,345).
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 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:
Revenue by Geographical Destination Six Months Ended Six Months Ended Year Ended 31-Dec 2021
30-Jun 2022 30-Jun 2021
£'000 £'000 £'000
United Kingdom 1,167 479 894
Germany 136 95 188
Sweden 84 97 129
Rest of Europe 212 62 136
United States of America 1,157 353 831
Rest of World 102 122 191
2,857 1,207 2,369
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