City round-up: Surface Transforms; boohoo; Redx Pharma
Surface Transforms, the Knowsley-based specialist high performance brakes manufacturer, has overcome production problems, but will be unable to recover the financial impact, it warned today.
It said in an update today that there are more than 20 complex production steps in the overall production process and all sub-processes are now achieving their individual first quarter 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 more than a month. This was the last major impediment to meeting ongoing daily customer requirements.
Over the last 18 months the company has been installing capacity to support contracted sales from £2m per annum in 2020, to more than £30m pa in 2024. Installation of this capacity increase is on track, with installed revenue capacity of £50m pa.= 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.
In a trading update, the company said the production issues that negatively affected turnover, production costs and operating loss for the financial year ended December 31, 2022, continued into the first quarter of 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.
Looking ahead, the technical issues are now resolved, and demand remains strong. The company is 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, overall profitability during fiscal year 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, the OEM (original equipment manufacturer) 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 the company 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.
CEO, Kevin Johnson, 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.”
Surface Transforms will be reporting its results for full year 2022 results on April 17, 2023. The company will provide an update on its Q2 2023 sales on or about the time of its annual general meeting, currently expected June 27, 2023.
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Alistair McGeorge
Manchester online fashion retailer, boohoo, has appointed Alistair McGeorge to the board as an independent non-executive director, with effect from March 31, 2023.
Alistair, formerly boss of Liverpool-based Littlewoods and Matalan, succeeds Brian Small as the group’s deputy chairman and will act as interim chair of the audit committee until the search for an additional non-executive director to fulfil the role is complete. Alistair is also be a member of the remuneration, nomination, risk and ESG committees.
He is currently the non-executive chairman of East Imperial plc and The Original Factory Shop, as well as chair of The Retail Trust, which provides support to retail employees. He has worked within the retail industry over the past 30 years and has been CEO and/or chairman of multiple retail brands in the UK and internationally. Alistair is a qualified Chartered Accountant.
In addition, with effect from March 31, 2023, Neil Catto stepped down as executive director after nearly 12 years with the group, the majority of which was spent as chief financial officer.
Mahmud Kamani, group executive chairman, said: “Alistair has extensive board level experience with some great retail brands. We look forward to working with him and are confident that he will help us deliver our ambition to be the global fashion leader.
“Brian departs with my significant thanks for his positive contribution over the last four years on the board, initially as audit chair and then as deputy chair from December 2019. Neil has been with the group for 12 years and is held in the highest regard for his substantial contribution.
“He has been instrumental in building the group from a one-brand-business and into a multi-brand platform. I, on behalf of the wider board, management team and group, wish Neil and Brian the very best for the future.”
Alistair McGeorge, 63, was a director of Top Gun Realisations 73 plc and Top Gun Realisations 74 plc when they entered creditors voluntary liquidations in August 2019. Both companies were dissolved in September 2020, with a shortfall to creditors of £184.6m and £308.9m, respectively.
He was also a director of Top Gun Realisations Limited when it entered administration in May 2019, and was dissolved in September 2020 with £580m owed to creditors via a guarantor arrangement.
Alistair was a director of New Look Retailers Limited when it entered into a CVA in March 2018. This was completed and terminated in September 2020 with no payments to creditors. A second CVA, which remains ongoing, was launched in September 2020, which was within 12 months of Alistair’s resignation as a director.
He holds no shares in boohoo.
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Lisa Anson, CEO of Redx
Cheshire drugs discovery firm Redx said it has formally agreed to end the proposed $425m merger with US-based Jounce Therapeutics.
Alderley Park-based Redx announced the recommended proposed deal in February, but last month the merger was thrown into doubt after an unsolicited offer from US-based Concentra Biosciences LLC was lodged for Jounce.
Jounce has since confirmed it entered into a definitive merger agreement to be acquired by Concentra, quashing any likelihood of a merger with Redx, which today announced it has entered into an agreemtn with the Takeover Panel and Jounce Therapeutics Inc that Jounce will be released from its obligations to proceed with the offer. As a result, the offer will lapse.
Lisa Anson, Redx chief executive, said: “Although it is clearly disappointing that the business combination with Jounce will not proceed, Redx continues to demonstrate strong momentum in its pipeline, and we are poised to achieve significant value inflection points from both clinical stage assets and development candidates in the next 12 months.
“The board continually evaluates relevant strategic and financial opportunities for the company, and we will continue to do so in the best interests of our shareholders.”
