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********EPIC: SCE*****PRICE: 20p*****SECTOR: AIM*****MARKET CAPITALISATION: £2.81m********


Surface Transforms is aiming to organically build a niche business in the licensing of proprietary carbon
ceramic composite technology. The initial focus has been on automotive and aircraft brake applications
and rocket motors are also seen as a primary market. Key secondary markets, where development is
undertaken, include clutches and brakes for motor sport and light armour in the ballistics market.
Having previously been listed on OFEX, which has since become PLUS Markets, the company joined AIM
in 2002. Although the business has remained loss-making since then, overheads have been kept under
tight control and future profitability is now achievable on relatively modest sales. With net cash at the end
of February representing 9p per share, the current market price places little value on what has been
achieved to date. Although losses are being forecast in the immediate future, the management team has a
keen eye on the bottom line and is aware of the need to demonstrate profitability.


Results for the six months ended 30 November 2006 were released in February and these showed turnover of £116,439, up
strongly from £68,302 the previous year. The reported loss after tax was £292,098, which was also an improvement on the
same period in 2005 when a restated loss after tax of £384,511 was posted.
The net cash outflow from operating activities was narrowed from £681,688 to £431,100. The company is keeping control of
cash well and factors such as interest and tax repayments resulted in net cash of £1.47m being held at the period end.
The management team was strengthened during the period with Ken Baker joining as a non-executive director.

 Operates in an innovative, niche market
 Collaborative R&D project will boost
financial performance and cash flow
 Costs under control
 Strong net cash position, which equated
to 9p per share as at 28/2/07
 Experienced Board of Directors

12 Month High/Low: 28.5p/11.5p


Year to Turnover Pre-tax Earnings per P/E Ratio Net Net Yield
31 May (£m) Profit share (p) Dividend (%)
(£m) (p)
2004A 0.43 -0.25 -1.36 N/A - -
2005A 0.26 -0.68 -4.47 N/A - -
2006A 0.16 -0.92 -5.79 N/A - -
2007E 0.30 -0.70 -5.10 N/A - -

Tracing its roots to a business founded in 1992 to exploit new composite manufacturing material patents obtained from ICI,
Surface Transforms was incorporated in 1999. The following year the company was introduced to OFEX and by September
2002 had moved to AIM. More recently, the business operations have physically moved to Olympic Park in Ellesmere Port,
where all activities are now under one roof. The core activity is exploiting proprietary technologies to create innovative,
lightweight, high energy dissipating braking system materials which can be commercialised for high-performance
applications. Automotive brakes and clutches are an area of particular focus and SystemST, a braking system for the
prestige and performance car market, provides weight savings of up to 70% alongside other favourable characteristics such
as an improved friction coefficient. The Koenigsegg CCGT racing car, shown at the Geneva Motor Show 2007, is fitted with
SystemST brakes and this could help in winning motor sport contracts. Innovative materials have also been provided for rail
brakes for high-speed trains and CFRCs (carbon fibre reinforced ceramics) developed by Surface Transforms offer a
number of properties which set them aside from carbon-carbon aircraft brakes. Aerospace components, rocket motor
systems and ballistics are other areas where applications can be used. For instance, the company has worked alongside
the UK Ministry of Defence to develop CFRC materials to replace more traditional ceramics in body and vehicle armour.

Although to date the company has reported very little by way of turnover, there is now a clear strategy in place to move
towards profitability. Whilst it could be easy to allow costs to run away with themselves in some of the exciting markets in
which Surface Transforms operates, the experienced management team have kept a tight rein on costs. This means that
profitability can be achieved through a very sensible level of sales, particularly in the automotive market. Having moved to
the new site at Ellesmere Port, there have been significant cost savings and increased productivity. All manufacturing and
development are carried out at this location. Testing is also managed from the site and the company has a full-scale brake
testing dynamometer which is particularly useful in motor sport markets.

Surface Transforms works alongside some very interesting partners and operates in a dynamic marketplace. The company
has a healthy cash balance which means that it is able to move forward without wasting management time on raising new
capital. In March it was announced that the DTI led Technology Programme has funded a grant of £600,000 to a
consortium of companies spearheaded by Surface Transforms. This is part of a three year, £1.34 million collaborative
research and development programme covering the innovative use of recycled carbon waste material for use in brake
systems for cars and brake friction products on aircraft. This will provide a contribution to overheads and also see cashflow
improve by around £140,000 for each year that the project runs.


Analysts: Contact Name: Significant Shareholdings:

Simon Flather Kevin D’Silva - Chairman J Faria: 13.2%
Lucy Clapham Kevin Johnson - Managing Director J M Finn Nominees: 11.4%
Chris Bragg Tel: 0151 3562141 Gartmore Investment Mgt: 7.7%
Prof D T Clark: 7.1%
Contact Address: Artemis Investment Mgt: 5.8%
Date of Report:
Unit 4, Olympic Park, Bank of New York (Nominees): 5.1%
11 May 2007
Poole Hall Road, Ellesmere Port, Barclayshare Nominees: 4.6%
Cheshire CH66 1ST Advance AIM Val Real Co Ltd: 4.2%
Securities Services Noms: 3.3%
Giltspur Nominees Ltd: 3.2%
Redmayne-Bentley 2007. All rights reserved. This report has been prepared and issued by Redmayne-Bentley, Ilkley for distribution in the United
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tional purposes only. Statements and opinions contained in this report represent those of Redmayne-Bentley, Ilkley Branch as at the date of the
report and not held out as applicable thereafter. This report should only be considered as a single factor in making an investment decision. Infor-
mation used in the publication of this report has been compiled from sources believed to be reliable but it has not been independently verified: no
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Bentley Ilkley has decided that due to conflicts of interest this report should not be regarded as independent or impartial as defined by the rules of
the Financial Services Authority.

Head Office: Merton House, 84 Albion Street, Leeds LS1 6AG

Members of the London Stock Exchange
Authorised and Regulated by the Financial Services Authority
Partners: Keith Loudon FCA MSI, David Loudon BSc (Hons) MBA FSI, Stuart W Davis FSI,
Michael E J Wheeler MA (Oxon) FCA FSI, Redmayne Capital Ltd
VAT. Reg. No. GB 613 1397 63

TEL: 01943 886600

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