Brakes specialist still on course for cash break-even next year

Surface Transforms

Surface Transforms, the Knowsley-based firm which makes carbon brakes for high performance cars and aircraft, said it has been frustrated by start of production troubles for customers which will impact its annual figures.

But it said it will have no long-term bearing on the business.

In a trading update for the year to May 31, it also reported that progress on a compensation claim for delays on start of production with an original equipment manufacturer (OEM) have not been concluded.

“Given the timing of Surface Transforms’ financial year end, revenues of approximately £250k that had been budgeted in FY19 are now expected to fall in FY20,” it said.

“In addition, the OEM 6 production schedule has also been revised, with the build rate being loaded to the second half of the 2020 calendar year, therefore deferring FY20 revenues into FY21.

“However, the delayed compensation claim and phasing will have no impact on the lifetime revenues of the contract and the total number of cars to be built remains unchanged.”

The company also revealed that, separately, it has three near-OEM customers who have each recently suffered either delayed start of production (SOP) and/or production problems.

This deferment of revenues, as well as increased de-stocking by aftermarket distributors, for Surface Transforms’ retrofit market, mean the board now expects to report revenue in financial year 2019 of approximately £1m.

The company said it continues to have confidence in the significant potential of the near-OEM segment, none of the delayed sales have been lost.

However the consistent experience of late SOP and production delays is causing the company to review the near-OEM financial year 2020 forecast, which hazards £350,000 of previously forecast 2020 sales.

“Surface Transforms continues to believe that it will be able to announce positive developments on programmes with OEM 5 and the new model at OEM 6 within the next few months.”

As previously reported in the firm’s half year results on February 26, in respect of the company’s aerospace activities, management continues to await the outcome of discussions between the landing gear manufacturer, airframe builder and the US DOD on the company’s request for pre-funding before undertaking any further work on the project.

The board had previously budgeted £200,000 revenue in financial year 2020 from this project, but, while discussions continue, given the time elapsed already, the board said it considers it prudent to remove this income from current forecasts.

Chief executive Kevin Johnson said: “It is always disappointing to be reducing guidance but it is important to stress that none of the above impacts the future potential business with OEM 5 or OEM 3 or the new model at OEM 6.

“Furthermore the bulk of the changes do not reflect any changes to our ambitions or longer-term expectations in the aircraft or near OEM-market. The company continues to see a significant business in both segments and will continue to vigorously pursue these opportunities.”

In March this year Surface Transforms raised £1.9m through a placing of new shares, and Mr Johnson added: “We have modelled the cash on these reduced forecasts and cash at 31 May 2019 is expected to be approximately £1.9m and thanks to the recent equity fundraise has headroom to reach the period of cash break-even, now mid-calendar 2020.

“We continue to believe that we will be able to announce progress on OEM 5 and the new model at OEM 6 in the near future.”