Surface Transforms doubles production after overcoming challenges
Production levels have doubled at Surface Transforms, the specialist brakes manufacturer based in Knowsley, it revealed today (July 19).
In a trading update for the six months to June 30, 2024, the company revealed that, over the past four weeks, to July 12, it has consistently been achieving record daily and weekly production levels that enable it to meet its requisite run rates on output to meet full year estimates.
As previously announced, the second quarter was impacted by supply chain difficulties in April and May, caused by working capital constraints. These problems were progressively resolved in full during June following the company’s recent fund raising.
Yields had also been lower than expected but have held steady at 75%. The company said it has a clear pathway to further improvements and expects to achieve the previously guided 86% yield in Q4 2024.
Because of these challenges, both tooling and R&D costs were approximately £2m higher in the first half of 2024 than forecast. While tooling costs are now reducing, the cost of improving yields will continue to be higher than previously forecast for the full year, it revealed.
Sales guidance for 2024 remains in line with market estimates – £17.5m – as current output levels are delivering to the revised customer needs.
Total sales for H1 2024 were £4.6m, including the impact of no pre-production engineering revenues due to the revision to the company’s revenue recognition policy. Surface Transforms anticipates recognising £1.7m in engineering sales during H2 24.
The company said it will continue to grow, and its planned rate of growth is not without risk, but the board believes that it also remains on track to deliver market estimates for 2025, including £28m sales, positive EBITDA and operational cash generation.
In May the AIM-listed company raised more than £9.5m in an open offer for its shares. This was in addition to a £13.2m local authority loan – ringfenced for capital expenditure – which was announced on December 11, 2023.
Today’s update revealed that cash, as at June 30, 2024, was £5m. While this is expected to reduce towards the year end, no further funding is required, it confirmed.
CEO, Kevin Johnson, said: “The recent significant increase in daily output levels, over several weeks, is most encouraging both in terms of its consistency and recent output levels.
“Capacity constraint is diminishing as a production impediment, thanks to the reduction of the single points of failure problem.
“We acknowledge that production yields, whilst improving, are still below plan. However, the issues are understood, we expect to overcome them, and we are now building these further improvements from this higher baseline.
“We look forward to meeting shareholders at next week’s AGM to provide a fuller update.”
