Surface Transforms happy with full year guidance, despite production problem

Knowsley-based specialist brakes manufacturer, Surface Transforms, said it is happy with its full year forecast, and announced that chairman, David Bundred, is stepping down after 12 years on the board.

The company issued a trading update for the first quarter period, to March 31, 2024, in which it highlighted problems in its manufacturing process that it said “have absorbed a sizeable amount of working capital and cash”.

But it reassured customers and investors that this is in hand.

Surface Transforms makes carbon fibre reinforced ceramic disc brake materials for specialist customers, such as high performance cars and aircraft.

Sales in the first quarter were £3m. The sales trend for the past five quarters have been 2023 Q1 £1.4m, Q2 £1.9m, Q3 £2m and Q4 £3m followed by Q1 £3m in 2024.

It said, accepting that £3m maintains its run rate rather than increases it in Q1 2024 and was lower than its internal target, sales in March 2024 were £1.5m.

Furthermore, significant improvements in the underlying operational performance led by Stephen Easton, Chief Operations Officer, have also been achieved.
The company said its single point of failure capacity constraints in manufacturing have now, almost all, been resolved, the revised maintenance procedures and continuing operator training have significantly improved plant availability, and performance.

However, the prime remaining operational challenge relates to continuing high levels of scrap from processes that are not yet fully capable.

It said, again, it regards these issues as a learning curve and note that considerable success has been achieved in recent weeks in reducing scrap. The company expects to continue these improvements over the coming months unlocking further capacity.

It has now agreed revised 2024 delivery schedules with all customers that progressively pull back arrears and is broadly keeping to these schedules. It said the customer situation is stable.

The programme to install new capacity is proceeding to plan and all but one of the furnaces for the £50m sales per annum should be on site by mid-year.

The issue with the last furnace relates to site expansion rather than the machine itself. The protracted negotiations regarding the site expansion have now been concluded enabling the last furnace to progress.

Surface Transforms said its customers have taken great comfort that the financing for its capital expenditure programmes in 2024 and 2025 has been secured and ring fenced by the terms of its local authority loan.

Capacity increases can also be achieved by internal work on already installed furnaces which, over time, can be substantial. The company has a number of these projects under way, they are progressing well and form part of 2024 capacity contingency plans.

The 2023 audit is ongoing, and the company expects to announce its preliminary results in late May.

Looking ahead, the firm said it is maintaining sales guidance of £23m for the year ending December 31, 2024.

Chairman David Bundred has confirmed that after 12 years on the board, he intends to retire from this role this year.

A search process has now started led by Julia Woodhouse who has taken over Chair of the Remuneration and Nominations Committee.

CEO, Kevin Johnson, said: “Our priority in Q1 was a combination of fixing the underlying fundamentals and continuing to improve customer relationships.

“Our customers have been kept fully informed of progress and remain committed.

“The team has also made significant progress on the key challenges of building capacity and reducing scrap which is critical to continuing our ramp up and driving revenue growth during 2024 and 2025. Our commitment to building up production capacity, this year and beyond remains absolute.”