Specialist brakes firm raises £1.4m with share placing

High performance cars

Surface Transforms, the Knowsley-based ceramic brake manufacturer, has placed 10.8 million new ordinary shares to raise gross proceeds of around £1.4m.

Cantor Fitzgerald is acting as nominated adviser and joint broker and finnCap is acting as joint broker in connection with the placing by the AIM-listed company.

In addition to the placing, Surface Transforms intends to provide all qualifying shareholders with the opportunity to subscribe for an aggregate of up to 2,307,692 new ordinary shares at the issue price of 13p per share, to raise up to approximately £300,000, before expenses.

The issue price represents a discount of approximately 16% to the price of 15.5p per existing ordinary share, being the closing price on April 8, 2020.

Surface Transforms makes specialist brakes for high performance cars and aircraft.

The net proceeds of the placing will provide Surface Transforms with sufficient working capital to enable it to continue operating should COVID-19 impact the business in a material manner.

The board has modelled various scenarios and a working capital buffer of £1.3m is sufficient, even where forecast revenues to fall approximately 50% to £1.6m for the year ending December 31, 2020.

As set out in the company’s COVID-19 Update on March 27, it remains operational and is manufacturing brake discs with sufficient raw material and component inventory to continue to do so for some months.

Since the start of the year the company has not yet received any cancellations or original equipment manufacturer (OEM) deferments of pre-contracted purchases.

In addition, the company said it is extremely pleased with recent discussions and progress made with other new OEMs as part of its prospective contract pipeline of £50m per annum during the next five years.

The board said it has responded quickly to the challenges of the COVID-19 outbreak, implementing various cash retention initiatives including:

  • Furloughing approximately 50% of the company’s employees to reduce its short-term operational cost base;
  • A review of the operational cost base implementing some further variable cost reductions and payment holidays;
  • Executive director remuneration being reduced by 10% for not less than six months, and the non-executive directors’ remuneration being reduced by 20% for not less than three months;
  • Cancellation of the bonus scheme for executive directors and the senior management team for the current financial year;
  • Delaying any non-essential capital expenditure; and
  • Ceasing any non-essential other expenditure.

The company has also applied for a Coronavirus Business Interruption Loan (CBIL), but does not yet know whether its application has been successful.

Even if the application is successful, there can be no guarantee that the full amount of the loan applied for will be awarded.

However, given the various actions taken, and being taken, by the board, it is confident the company will have sufficient working capital to navigate a significant reduction in revenues, even if the CBIL application is unsuccessful.

The placing will enable Surface Transforms to focus on fulfilling its existing customer contracts and being nominated on new OEM cars without distractions on the financial health of the business.

While a substantial proportion of the company’s staff are being temporarily furloughed, the board believe that the remaining team will be able to continue to meet the key milestones as set out in the existing OEM long-term contracts.

The remaining group of non-furloughed senior management, engineers and developers can continue progressing all existing engineering on the company’s other new OEMs as part of its prospective contract pipeline.

The firm said that, were a greater number of staff furloughed, the board considers there would be a risk that current discussions and activity with other new OEMs would curtail considerably.