REG - Surface Transforms - Result of Placing, Open Offer Launch & GM Notice

Surface TransformsAnnouncement

29/09/2022 08:45

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RNS Number : 1456B  Surface Transforms PLC  29 September 2022

29 September 2022

 

THIS ANNOUNCEMENT, AND THE INFORMATION CONTAINED HEREIN, IS NOT FOR
PUBLICATION, RELEASE OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN
PART, IN OR INTO OR FROM THE UNITED STATES, AUSTRALIA, NEW ZEALAND, CANADA,
JAPAN, THE REPUBLIC OF SOUTH AFRICA, THE REPUBLIC OF IRELAND OR ANY OTHER
JURISDICTION IN WHICH IT WOULD BE UNLAWFUL TO DO SO.

 

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 THE DOMESTIC LAW OF THE UNITED KINGDOM
BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018 (AS AMENDED) ("MAR").
UPON THE PUBLICATION OF THIS ANNOUNCEMENT VIA THE REGULATORY INFORMATION
SERVICE, THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC
DOMAIN.

 

Surface Transforms plc.

("Surface Transforms" or the "Company")

 

Result of Placing and Subscription

Launch of Open Offer

Notice of General Meeting

 

Surface Transforms (AIM: SCE), manufacturers of carbon fibre reinforced
ceramic automotive brake discs, is pleased to announce that further to the
Company's announcement released at approximately 5.03 p.m. on 28 September
2022 ("Launch Announcement"), the Bookbuild has closed and the Company has
conditionally raised gross proceeds of £16.0 million, through the successful
placing of 39,400,000 Placing Shares and 600,000 Subscription Shares at the
Issue Price of 40 pence per Ordinary Share.

 

The Placing Shares and Subscription Shares represent approximately 20.5 per
cent. of the Company's Existing Ordinary Shares. The Issue Price represents a
discount of approximately 14.0 per cent. to the closing mid-market price per
Ordinary Share of 46.5 pence on 27 September 2022, being the last Business Day
prior to the Launch Announcement.

 

In addition to the Placing and Subscription, the Company intends to provide
all Qualifying Shareholders with the opportunity to subscribe for an aggregate
of up to 7,500,000 Open Offer Shares at the Issue Price, to raise up to
approximately £3.0 million (before expenses), on the basis of 1 Open Offer
Share for every 26.04748813 Existing Ordinary Shares held on the Record Date.
Qualifying Shareholders subscribing for their full entitlement under the Open
Offer may also request additional Open Offer Shares through an excess
application facility (the "Excess Application Facility").

 

The Placing, Subscription and Open Offer are conditional upon, inter alia, the
passing of the Resolutions at the General Meeting and upon the Placing
Agreement becoming unconditional in all respects (save for the condition
relating to Admission) in relation to the Placing and Open Offer and Admission
in relation to Subscription. The Placing is not conditional on the Open Offer
proceeding or on any minimum take-up under the Open Offer.

 

David Bundred, Chairman of Surface Transforms commented:

 

"I would like to take this opportunity to both thank existing shareholders for
the continuing support and to welcome new shareholders to the exciting Surface
Transforms journey. This funding provides the foundation to meet the capacity
needs of our growing customer base for the immediate future whilst also
providing a significant step forward for Surface Transforms being able to
generate levels of free cash flow that will provide us significant financial
flexibility when choosing how to fund future stages of this journey."

 

Reasons for the Fundraising

As set out in the Launch Announcement, the Company is very pleased with recent
discussions and progress made with several OEMs to build upon its current
contract expected revenue pipeline of £190 million(1). The Company has
recently had a new contract awarded by OEM 9 for £13 million and expects to
announce another new contract in 2022.

Upon completion of Phase 2 of the manufacturing expansion, the current
Knowsley facility will have a revenue capacity of £50 million p.a., which
provides sufficient capacity for the currently contracted revenue but with no
additional resilience or flexibility to manufacture discs for new contracts.
As set out above, Phase 3.1, at a cost of £10 million, will increase the
revenue capacity of the current Knowsley facility to £75 million(2) p.a.

Given the expected required ramp up in production, coupled with the lead time
of c.18 months to ensure the factory is operational, the Board consider it
appropriate to have the funds to build capacity ahead of any further future
contract awards. Indeed, the Board believe committed plans for future capacity
expansion are crucial to the Company's ability to win further contracts.

Whilst it is possible that no OEMs will award any new contract to the Company,
based on dealings with OEMs to date and managements understanding of the OEMs'
production plans, the Directors are of the opinion that there is ongoing
positive progress with multiple OEM customers, both for new contracts and
carry over contracts, that necessitate planning for the future. Accordingly,
the Board are confident that production capacity provided by Phase 3.1 and 3.2
will be required, noting that the combined revenue capability of the existing
and new Knowsley factories will be £150 million(2) p.a.. Putting this in
context, the Company's combined current OEM contracts and prospective contract
pipeline total £590 million(1), and assuming an average contract term of five
years, provides an annual equivalent revenue requirement, should all the
prospective contract pipeline be formally awarded, to approximately £118
million annual revenue; this significantly exceeds the maximum revenue
capacity of £75 million(2) of the existing Knowsley site.

(1) This is based on the Directors' expectations and their understanding of
the relevant OEM's production plan and estimated demand for discs.

2 Based on management's estimates of sales proceeds from expected production
volumes.

Use of proceeds

The total cost of Phases 3.1 and 3.2 is expected to be c.£50 million,
comprising:

 Phase 3.1                                    £10 million
 Phase 3.2                                    £30 million
 Working capital (to support revenue growth)  £10 million
                                              £50 million

This will be financed partially from net proceeds of the Placing and
Subscription of c.£15.2 million, whilst c.£25 million required expenditure
will be funded by proceeds from the Open Offer and future operating cash
flows.  The balance, if required, will likely be financed from a combination
of sources, including from local authority funding, UK Export finance, asset
financing, operational cash flows or another form of financing.

 

Related Party Transactions

 

The Directors' interests as at today and following completion of the
Fundraising are as follows:

 

 Director             Existing beneficial interest in Ordinary Shares  % of current share capital  Subscription Shares subscribed for  Open Offer Shares to be applied for  Ordinary Shares after Placing and Subscription  % of Enlarged Share Capital(3)

 David Bundred(1)     1,360,025                                        0.70%                       37,500                              -                                    1,397,525                                       0.58%
 Kevin Johnson        991,308                                          0.51%                       -                                   -                                    991,308                                         0.41%
 Michael Cunningham   170,000                                          0.09%                       -                                   -                                    170,000                                         0.07%
 Richard Gledhill(2)  15,013,346                                       7.69%                       -                                   -                                    15,013,346                                      6.18%
 Matthew Taylor       55,000                                           0.03%                       375,000                             -                                    430,000                                         0.18%
 Julia Woodhouse      -                                                -                           125,000                             -                                    125,000                                         0.05%
 Ian Cleminson        102,053                                          0.05%                       62,500                              -                                    164,553                                         0.07%

 

 

(1  ) Including 681,865 Ordinary Shares held in nominee accounts and ISAs of
connected parties

(2  ) Held as to 11,470,678 Ordinary Shares through his investment vehicle
Group-14 LTD and 1,675,511 Ordinary Shares in SIPPs and ISAs of connected
parties

(3)   Assuming Open Offer applications in total for the full number of Open
Offer Shares available

 

David Bundred, Chairman of the Company, Matthew Taylor, Julia Woodhouse and
Ian Cleminson, each a non-executive director of the Company, and/or persons
connected with each of them have conditionally subscribed for an aggregate of
600,000 Subscription Shares, which constitutes a related party transaction
under the AIM Rules.

 

Accordingly, Kevin Johnson, Michael Cunningham and Richard Gledhill are
considered to be independent directors of the Company for the purposes of AIM
Rule 13. Having consulted with the Company's nominated adviser, Kevin Johnson,
Michael Cunningham and Richard Gledhill consider that the terms of the
Directors' participation is fair and reasonable insofar as Shareholders are
concerned.

 

Mr. Richard Sneller, as a substantial shareholder of the Company, is
subscribing for 6,250,000 Placing Shares, which constitutes a related party
transaction under the AIM Rules for Companies.

 

Canaccord Genuity Wealth Management Limited, as a substantial shareholder of
the Company, is subscribing for 4,826,417 Placing Shares, which constitutes a
related party transaction under the AIM Rules for Companies.

 

In the case of participation by Mr. Richard Sneller and Canaccord Genuity
Wealth Management Limited, all the Directors are considered to be independent
for the purposes of AIM Rule 13. Having consulted with the Company's nominated
adviser, the Directors also consider that the terms of the participations in
the Placing by Mr. Richard Sneller and Canaccord Genuity Wealth Management
Limited are fair and reasonable insofar as Shareholders are concerned.

Posting of Circular

The Company will post a Circular to Shareholders later today, containing a
Notice of General Meeting, proxy form and full details of the Open Offer
including the Application Form. The Circular will also be available on the
Company's website at www.surface (http://www.surface) transforms.co.uk.

Investor presentation

The Company will provide a live presentation to investors and any other
interested parties on via Hardman & Co's platform at 10.15 a.m. on Monday
3 October 2022. Interested parties can register for the presentation at
https://us06web.zoom.us/webinar/register/WN_i_3DuhFcQtaQ-IKBOiGs_Q
(https://us06web.zoom.us/webinar/register/WN_i_3DuhFcQtaQ-IKBOiGs_Q) .

Surface Transforms is committed to ensuring that there are appropriate
communication structures for all its Shareholders. Questions can be submitted
in advance as well as during the event via the "Ask a Question" function.
Although management may not be in a position to answer every question
received, they will address the most prominent ones within the confines of
information already disclosed to the market.

General Meeting

 

The Fundraising is conditional upon, inter alia, the passing of the
Resolutions. The General Meeting will be held at the offices of Gateley Plc,
Ship Canal House, 98 King Street, Manchester, M2 4WU at 9.30 a.m. on 19
October 2022.

 

Irrevocable commitments

 

The Directors (or persons connected with the Directors within the meaning of
sections 252 - 255 of the Act), who in aggregate hold 17,691,732 Ordinary
Shares, representing approximately 9.1 per cent. of the Existing Ordinary
Shares of the Company, have irrevocably undertaken to vote in favour of the
Resolutions at the General Meeting and not to subscribe for any of the Open
Offer Shares.

 

 Expected timetable of principal events

 Record Date for the Open Offer                                                                                  close of business on 27 September 2022
 Publication of Circular and Application Form                                                                    29 September 2022
 Ex entitlement date for the Open Offer                                                                          8.00 a.m. on 30 September 2022
 Open Offer Entitlements and Excess CREST Open Offer Entitlements credited to                                    as soon as possible after
 stock accounts of Qualifying CREST Shareholders

                                                                                                                 8.00 a.m. on 3 October 2022
 Recommended latest time for requesting withdrawal of Open Offer Entitlements                                    4.30 p.m. on 11 October 2022
 and Excess CREST Open Offer Entitlements from CREST
 Latest time for depositing Open Offer Entitlements and Excess CREST Open Offer                                  3.00 p.m. on 12 October 2022
 Entitlements in to CREST
 Latest time and date for splitting of Application Forms (to satisfy bona fide                                   3.00 p.m. on 13 October 2022
 market claims only)
 Latest time and date for receipt of proxy forms for General Meeting                                             9.30 a.m. on 17 October 2022
 Latest time and date for receipt of completed Application Forms and payment in                                  11.00 a.m. on 17 October 2022
 full under the Open Offer and settlement of relevant

CREST instructions (as appropriate)
 Announce result of Open Offer                                                                                   by 19 October 2022
 General Meeting                                                                                                 9.30 a.m. on 19 October 2022
 Announcement of the results of the General                                                                      19 October 2022
 Meeting
 Admission and commencement of dealings in Placing Shares, Subscription Shares                                   8.00 a.m. on 20 October 2022
 and Open Offer Shares
 CREST members' accounts credited in respect of Placing Shares, Subscription                                     as soon as possible after
 Shares and Open Offer Shares in uncertificated form

                                                                                                                 8.00 a.m. on 20 October 2022
 Dispatch of definitive share certificates for the Open Offer Shares in                                          27 October 2022
 certificated form

 

Open Offer

 

In order to provide all Qualifying Shareholders with an opportunity to
participate, the Company is conducting an Open Offer providing those
shareholders the opportunity to subscribe at the Issue Price for an aggregate
of 7,500,000 Open Offer Shares. This allows Qualifying Shareholders to
participate on a pre-emptive basis whilst providing the Company with the
flexibility to raise additional equity capital to further improve its
financial position.

 

Qualifying Shareholders are being offered the opportunity to apply for
additional Open Offer Shares in excess of their pro rata entitlements to the
extent that other Qualifying Shareholders do not take up their entitlements in
full. Qualifying Shareholders with nil basic entitlement will still be
eligible to apply for Open Offer Shares under the Excess Application Facility.
In the event applications exceed the maximum number of Open Offer Shares
available, the Company will decide on the basis for allocation. The Open Offer
Shares will not be placed subject to clawback nor have they been underwritten.
Consequently, there may be fewer than 7,500,000 Open Offer Shares issued
pursuant to the Open Offer.

 

The Open Offer is conditional, amongst other things, on the following:

 

i.              approval of the Resolutions at the General
Meeting;

 

ii.            completion of the Placing;

 

iii.           the Placing Agreement not being terminated prior to
Admission and becoming and being declared otherwise unconditional in all
respects (save for the condition relating to Admission); and

 

iv.           Admission becoming effective on or before 8.00 a.m.
on 20 October 2022 (or such later date and/or time as the Company, Zeus and
finnCap may agree, being no later than 31 October 2022).

 

Open Offer Entitlement

 

On, and subject to the terms and conditions of the Open Offer, the Company
invites Qualifying Shareholders to apply for their Open Offer Entitlement (as
defined in the Circular) of Open Offer Shares at the Issue Price. Each
Qualifying Shareholder's Open Offer Entitlement has been calculated on the
following basis:

 

1 Open Offer Share for every 26.04748813 Existing Ordinary Shares held by the
Qualifying Shareholder at the Record Date

Open Offer Entitlements will be rounded down to the nearest whole number of
Ordinary Shares.

Excess Application Facility

 

Qualifying Shareholders are also invited to apply for additional Open Offer
Shares (up to the total number of Open Offer Shares available to Qualifying
Shareholders under the Open Offer) pursuant to an Excess Application Facility.
Any Open Offer Shares not issued to a Qualifying Shareholder pursuant to their
Open Offer Entitlement will be apportioned between those Qualifying
Shareholders who have applied under the Excess Application Facility at the
sole discretion of the Board, provided that no Qualifying Shareholder shall be
required to subscribe for more Open Offer Shares than he or she has specified
on the Application Form or through CREST. Qualifying Shareholders with nil
basic entitlement will still be eligible to apply for Open Offer Shares under
the Excess Application Facility.

 

The Open Offer Shares will, when issued, be fully paid and rank pari
passu in all respects with the Ordinary Shares in issue at that time,
including the right to receive all dividends and other distributions declared,
made or paid after the date of Admission.

Qualifying Shareholders should note that the Open Offer is not a 'rights
issue'. Invitations to apply under the Open Offer are not transferable unless
to satisfy bona fide market claims. Qualifying non-CREST Shareholders should
be aware that the Application Form is not a negotiable document and cannot be
traded. Qualifying Shareholders should also be aware that in the Open Offer,
unlike in a rights issue, any Open Offer Shares not applied for will not be
sold in the market nor will they be placed for the benefit of Qualifying
Shareholders who do not apply for Open Offer Shares under the Open Offer.

Settlement and dealings

Application will be made to the London Stock Exchange for admission of the
Open Offer Shares. It is expected that Admission will become effective and
that dealings will commence at 8.00 a.m. on 20 October 2022.

 

Important information

 

This announcement is for information purposes only and does not itself
constitute an offer or invitation to underwrite, subscribe for or otherwise
acquire or dispose of any securities in the Company and does not constitute
investment advice.

 

Neither this announcement nor any copy of it may be taken or transmitted,
published or distributed, directly or indirectly, in or into the United States
of America, its territories and possessions, any state of the United States
and the District of Columbia (the "United States"), Australia, New Zealand,
Canada, Japan, the Republic of South Africa or the Republic of Ireland or to
any persons in any of those jurisdictions or any other jurisdiction where to
do so would constitute a violation of the relevant securities laws of such
jurisdiction. Any failure to comply with this restriction may constitute a
violation of the securities laws of the United States, Australia, New Zealand,
Canada, Japan, the Republic of South Africa or the Republic of Ireland. The
distribution of this announcement in other jurisdictions may be restricted by
law and persons into whose possession this announcement comes should inform
themselves about, and observe any such restrictions.

 

Any failure to comply with these restrictions may constitute a violation of
the securities laws of any such jurisdiction. Neither this announcement nor
any part of it nor the fact of its distribution shall form the basis of or be
relied on in connection with or act as an inducement to enter into any
contract or commitment whatsoever.

 

In particular, the Placing Shares have not been and will not be registered
under the US Securities Act, or under the securities laws or with any
securities regulatory authority of any state or other jurisdiction of the
United States, and accordingly the Placing Shares may not be offered, sold,
pledged or transferred, directly or indirectly, in, into or within the United
States except pursuant to an exemption from the registration requirements of
the US Securities Act and the securities laws of any relevant state or other
jurisdiction of the United States. There is no intention to register any
portion of the Placing in the United States or to conduct a public offering of
securities in the United States or elsewhere.

 

Zeus is authorised and regulated in the United Kingdom by the FCA and is
acting as nominated adviser and Joint Broker to the Company in respect of the
Placing. finnCap is authorised and regulated in the United Kingdom by the FCA
and is acting as Joint Broker to the Company in respect of the Placing. Each
of Zeus and finnCap is acting for the Company and for no-one else in
connection with the Placing, and will not be treating any other person as its
client in relation thereto, and will not be responsible for providing the
regulatory protections afforded to its customers nor for providing advice in
connection with the Placing or any other matters referred to herein and apart
from the responsibilities and liabilities (if any) imposed on Zeus or finnCap,
as the case may be, by FSMA, any liability therefor is expressly disclaimed.
Any other person in receipt of this announcement should seek their own
independent legal, investment and tax advice as they see fit.

 

Forward-looking statements

 

This announcement contains statements about the Company that are or may be
deemed to be "forward-looking statements".

 

All statements, other than statements of historical facts, included in this
announcement may be forward-looking statements. Without limitation, any
statements preceded or followed by, or that include, the words "targets",
"plans", "believes", "expects", "aims", "intends", "will", "may", "should",
"anticipates", "estimates", "projects", "would", "could", "continue" or words
or terms of similar substance or the negative thereof, are forward-looking
statements. Forward-looking statements include, without limitation, statements
relating to the following: (i) future capital expenditures, expenses,
revenues, earnings, synergies, economic performance, indebtedness, financial
condition, dividend policy, losses and future prospects and (ii) business and
management strategies and the expansion and growth of the operations of the
Company.

 

These forward-looking statements are not guarantees of future performance.
These forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of any such person, or industry results, to be
materially different from any results, performance or achievements expressed
or implied by such forward-looking statements. These forward-looking
statements are based on numerous assumptions regarding the present and future
business strategies of such persons and the environment in which each will
operate in the future. Investors should not place undue reliance on such
forward-looking statements and, save as is required by law or regulation
(including to meet the requirements of the AIM Rules for Companies, the FSMA
and/or MAR), does not undertake any obligation to update publicly or revise
any forward-looking statements (including to reflect any change in
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based). All subsequent oral or
written forward-looking statements attributed to the Company or any persons
acting on its behalf are expressly qualified in their entirety by the
cautionary statement above. All forward-looking statements contained in this
announcement are based on information available to the Directors at the date
of this announcement, unless some other time is specified in relation to them,
and the posting or receipt of this announcement shall not give rise to any
implication that there has been no change in the facts set forth herein since
such date.

 

The person responsible for arranging the release of this announcement on
behalf of the Company is Michael Cunningham, CFO.

 

Unless expressly defined in this announcement, capitalised terms shall have
the meanings as defined in the Launch Announcement.

 

 For further information, please contact:

 Surface Transforms plc                                             +44 151 356 2141

 David Bundred, Chairperson
 Kevin Johnson, CEO
 Michael Cunningham, CFO

 Zeus (Nominated Adviser 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

 

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