REG - Surface Transforms - Production, Capacity and Trading Update

Surface TransformsAnnouncement

03/04/2023 07:15

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RNS Number : 0491V  Surface Transforms PLC  03 April 2023

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.

 

 

3 April 2023

 

Surface Transforms plc

("Surface Transforms" or "the Company")

 

Production, Capacity, and Trading Update

 

Surface Transforms plc (AIM:SCE) manufacturer of carbon fibre reinforced
ceramic automotive brake discs provides the following update on previously
reported technical issues, capacity installation, first quarter sales and its
outlook for 2023.

 

Resolution of production technical problems

 

The Company is pleased to inform shareholders that the production issues
(previously reported on 11 January 2023) have now been resolved. There are
more than twenty complex production steps in the overall production process
and all sub-processes are now achieving their individual Q1 2023 daily
production targets.

 

As previously reported, one furnace issue in particular, significantly
affected output over the past six months, exacerbated by industry-wide supply
chain problems for furnace insulation. The Company has subsequently made
changes to that process in Q1 2023, including, but not limited to, use of more
readily available materials. These changes were successful, and that sub
process has now run, at target rates, for over a month. This was the last
major impediment to meeting ongoing daily customer requirements.

 

Progress with capacity increase

 

Over the last 18 months the Company has been installing capacity to support
contracted sales from £2m p.a. in 2020, to over £30m p.a. in 2024.
Installation of this capacity increase is on track, with installed revenue
capacity of £50m p.a. in place by September 2023.

 

This increased capacity will be sufficient to meet Surface Transforms' growing
customer demand for at least the next  18 months.  This additional capacity
also being required to provide resilience, "catch-up", capacity if any further
technical problems were to arise. The lack of this resilience, preventing the
Company catching up lost production, has compounded the technical problems
over the past six months.

 

Q1 Trading Update

 

The  production issues that negatively affected turnover, production costs
and operating loss for the financial year ended 31 December 2022 ("FY 2022")
continued into Q1 2023. As a result January and February production volumes
were lower and scrap costs were higher than planned. Cautious March loading
rates have resulted in Q1 2023 sales being £1.4m, and the quarter loss
making. Although the furnaces were trouble free in March, the Company
initially adopted a low risk strategy on individual furnace loading. Therefore
the overall total output for the month of March did not fully reflect the
underlying dramatic improvement in yield and furnace availability achieved
across the month.

 

Outlook for 2023

 

The technical issues are now resolved, and demand remains strong. We are now
ahead of the run rates required in Q1 and the Board remains confident that the
Company will be profitable in Q2 2023 and thereafter. However, given the
issues experienced in Q1 2023, and the ongoing production ramp in Q2, our
overall profitability during FY 2023 is expected to be below market
expectations.

 

While the Company and its supply chain will have the capacity to over produce
against the original planned H2 2023 production, our OEM customers and their
supply chains have their own constraints. Accordingly,  it is premature to
assume that these delayed sales will all be caught up in the year. Customer
discussions are continuing, and we will update the market as appropriate in
due course.

 

Accordingly the Board is planning its cash needs on the prudent assumption
that delayed Q1 sales are not recovered in the short term.  Despite this, the
Company will have sufficient cash to continue its extensive three year capital
expenditure programme and working capital required as sales increase through
the year.

 

Notice of Results

 

The Company will be reporting its results for FY 2022 on 17 April 2023. The
Company will also provide the opportunity to hear from, and ask questions of,
the Chief Executive on both this announcement and the full results for FY 2022
on a webinar to be hosted by Hardman and Co on Friday 21 April. Shareholders
who wish to join this webinar should follow the link:

https://us06web.zoom.us/webinar/register/WN_dGojxPYZQ6yAebGhfx3eow
(https://us06web.zoom.us/webinar/register/WN_dGojxPYZQ6yAebGhfx3eow)

 

The Company will provide an update on its Q2 2023 sales on or about the time
of its Annual General Meeting, currently expected 27 June 2023.

 

Kevin Johnson CEO said: "We regard the progress made on resolving all the
production technical issues to have been a major strategic breakthrough for
Surface Transforms. In combination with the progressive implementation of the
capacity increase, we are now confident of the timing of ongoing
profitability. In our cash flow forecasting we have assumed that the shortfall
in the first half of 2023 cannot be recovered in the second half.  But even
with this, hopefully prudent, assumption we are still expecting to have the
cash to maintain the momentum of our three year capacity installation
programme, and to fund our 2023 working capital need.

 

During the strains of recent months, we are particularly pleased that our
customers have understood the issues we have been facing, noted the progress
and have continued constructive discussions on future programmes.. The
expectation of both parties, throughout this period, has been that we would
fix the problems, which we have now done and install the capacity, which we
are doing. Our order book (£290m) and prospective contract pipeline (£300m)
are unchanged."

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)

Andrew Burdis / 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
(http://www.surfacetransforms.com)

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