Surface Transforms plc (LON:SCE) Chairman David Bundred caught up with DirectorsTalk for an exclusive interview to discuss the half year results, progress of the game changers, potential size of the business and further announcements
Q1: Now David, you‘ve just realised Surface Transforms’ half year results, what can you tell me about those?
A1: Well I think the statement was split into three parts, the first part was about the trading in the first half of the year, the first 6 months and I don’t think there was anything new in that, it essentially repeated the messages we gave in the trading update, the trading update we issued in December. I think it was the second part that should be new information to shareholders in the sense that it was all about degree of detail we now feel able to divulge about the game changers, indeed some might say that in a competitive market we’ve arguably divulged too much detail but the Board wanted shareholders to know just how much progress we’re making. Finally the third part of the RNS was we were updated shareholders on progress of the new factory and the grant discussions.
Q2: How are the game changers progressing?
A2: Very well, very well indeed. Aerospace going to plan, customers now signed off with his customer, the aircraft manufacturer, and we’re progressing to flight trials. Automotive, we’ve said this before, is five separate projects albeit three of them are sister companies, actually I think it’s worth making that comment whilst five separate projects stretches our engineering resource, that spread should give considerable comfort about the outcome. Within each of those projects, the five projects, we’re able to give considerable detail just to reinforce how real the progress is, we were able spell out start of production dates, volume, geography, indeed I think we’ve provided everything, the name of the vehicle manufacturer and the model name.
Q3: I guess one of the big questions is how big could the business be?
A3: I think one of the reasons we wanted to give the degree of detail in this RNS is just to begin to answer that question. Before I give a specific answer let me just give you some context, we’ve only got one competitor in the marketplace and he has sales of around £100-£150 million (that’s in the public domain that number) and he’s growing over 20% a year. The total market potential, like everything else, is a function of the price of which you would be able to offer for it and obviously cost, but at the sort of selling price/cost price that we can see over the next 5/10 years and our judgement, and it’s only a judgement call this bit, is that it’ll go on all cars over £50,000. Last time we looked at it, it was roughly half a million cars, 500,000 cars and that’s enormous potential, that’s upwards of £1 billion. So in summary on the context and I’ll then go and answer your question, we think our competitor at £100-£150 million has 10/15% if the market so where does that leave the potential for Surface Transforms, well the first point to make is that if 10/15% of the market is taken up, it still leaves an awful lot for both of us to go for. If you read the RNS, you’ll see we’re forecasting the initial model volumes at £15 million, in other words just add up all the numbers in the RNS, and that’s in a 3-5 year period, that’s 1/2 models per customer in the 2018 to 2020 time horizon. We are talking to customers about more than 1 model and the discussions we’re having see total volume about £50 million which would be in a 4-5 year time horizon. Thereafter, clearly the task after getting there is to match the size of the competitor, currently £100-£150 million and growing, beyond that it’s too early to say but this could be truly truly enormous.
Q4: What further announcements should we expect to see over the coming months?
A4: As I said in the RNS, we hope to be able to say something about the factory and the grant position in the near future, all I can say at this stage is that the discussions really are going very well. We’ve nearly ironed everything down as is often with complex negotiations involving a number of parties which you try to get together at the same time, we’re not quite there but we will be soon. As for the all-important customer announcements, we are not in control of being able to name the OEM’s but actually I can say our customers understand our frustrations and understand why we want to do so. More to the point, if some of the programmes have start production dates in 2018, you can see in the RNS I pointed out which ones that do, well they have to have reached component selection this year, at that point they would have to announce in order to secure their capacity needs. So factory first and we are still on for customer announcements, they have to do it as much as we have to do it in the current year. These are exciting times for Surface Transforms.
