Surface Technology Systems

Surface Technology Systems, or STS, is a Newport-based supplier of high-tech wafer processing equipment to the MEMS, opto-electronics and semiconductor industries and it endured a torrid 2002 on plummeting demand in the North American and UK photonics sector. The shares failed to spark up on a relatively reassuring trading update ahead of calendar 2002 figures, set for publication in March. Chief executive Ian Smith said second half and annual sales were in line with market expectations, and second half losses were lower than expected. An improved second half cashflow meant year-end debt was below forecasts. 'Borrowings at 31 December were approximately £2.8m lower than expectations' he said. Investors should expect some tough trading conditions in the first half of this year, but Smith insists market interest in STS equipment is strong and the second half should show signs of improvement. Previously, the house broker Rowan Dartington had losses of £10.9m pencilled in for 2002, with a £2.5m deficit set to follow in 2003. Sales and margins slumped at the interim stage with pre-tax losses reaching £8.4m, after £5.4m of 'non-recurring, non-cash' provisions mainly relating to component inventories, against a £3m pre-tax profit. STS is restructuring operations to match its reduced trading, but the business will be far more streamlined in readiness for a future upturn. Avoid for now.

Sector: Software & Computer Services

Companies: Surface Technology

Market cap: £3.3m

PE Forecast: n/a

Share price: 10.5p

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