Brake specialist targeting break even date, depending on customer schedules

Surface Transforms, the specialist brake manufacturer, reported a fall in half year revenues and increased losses today.

The AIM-listed company relocated its headquarters from Ellesmere Port, on the Wirral, to Knowsley, in Merseyside, last year.

This morning it announced that turnover had fallen from £524,000 to £509,000, while its loss before, and after, tax, increased by 15% from £1.294m to £1.482m, in the six months to November 30, 2018.

Cash reserves, at November 30, stood at £745,000, down from £923,000 in May 2018.

The firm completed a successful equity placing during the reporting period, raising £1.466m, net of expenses.

Capital expenditure on property, plant and equipment of £156,000, compared with £684,000 in the first half the previous year.

Surface Transforms makes carbon fibre reinforced ceramic materials used in a range of high performance vehicles, including racing cars, as well as aircraft.

It said it continues to test products with customers, including its OEM5 (original equipment manufacturer) product, which it says has made further progress with its German customer during the period.

The firm said OEM5 has reviewed its quality processes, logistics capability, financial strength and capacity plan and has approved Surface Transforms as a potential supplier to them.

“The company has broadly agreed initial pricing and is in the process of agreeing commercial terms,” it said.

Today’s statement said: “Work on passing the OEM3 rig test continues with good progress having been made in the period.”

It said its OEM6 project, as signalled in a trading update last December, has been delayed by six months due to a change to the start of production for the customer’s car.

“The delay has nothing to do with any brake system parts,” said Surface Transforms.

“In the meantime, the board is not changing the previous advice provided regarding the risk to current year sales of £500,000, but with no impact on lifetime revenues from the project itself.”

The statement added: “The company has also begun discussions with this customer on the next car model that is expected to have significantly higher volumes than the current model.

“Unsurprisingly, as it involves the same customer personnel, the delays on the current model are slowing discussions on the new model; nonetheless, the customer has told us of their wish to keep the ‘blood line’ between the two cars, a statement the board believes to be promising for ultimate selection.”

Looking ahead, chairman David Bundred said: “The company signalled a change in the outlook for the current financial year in a trading update on 4 December, reflecting a concern on the start of production date for OEM6.

“This slippage has now been confirmed as being six months, in line with the concerns expressed at that time. There are no further changes to expectations for the current year.

“The outlook for the next financial year, ending 31 May 2020, is unchanged in respect of automotive sales but the ongoing lack of clarity on the potential aerospace contract, hazards £600,000 of forecast sales in that year, albeit there is still time to resolve the financial discussions between the key parties.”

He added: “The company reaches cash break even when OEM 6 enters production in the financial year 2019-20.

“Thereafter the outlook is clearly dependent upon winning the expected OEM contracts described above which are scheduled for start of volume production in the 2021 to 2022 calendar years.

“The board remains optimistic about being awarded these potential contracts.”