Surface Transforms plc (LON:SCE), manufacturers of carbon fibre reinforced brake discs, announced today the below trading and operations update and progress with OEM 8.
Trading and operations update
The Board of Surface Transforms is disappointed to advise that despite considerable growth against prior year, revenue for the year ending 31 December 2021 will be below £3m, significantly short of market expectations. The shortfall has mainly been as a result of delays in the final commissioning of the upscaled production capacity at Knowsley (in relation to OEM Production Cell One) and the associated start of the anticipated upscaling of commercial revenues expected from December.
Whilst this capacity programme progressed considerably during the year, a series of minor startup challenges has caused output delay, resulted in Q4 output missing target. By December, these issues have been narrowed down to an issue with one particularly complex furnace, which the Board believe will be fully resolved imminently. Given December is a short month, the Company is unlikely now to recover the sales gap in this financial year.
It is important to note that these sales have not been lost, the key OEM customers have not seen any impact and the revenue gap, whilst proportionately large in 2021, is small in relation to overall 2022 volumes and is expected to be recovered progressively through Q1 and Q2 2022.
The Board recognise that the short-term effect of this is disappointing, but as noted above, believe these operational issues will all be satisfactorily resolved in short order. Accordingly, the Board intend to provide a further operations update in January 2022 and also to provide quarterly updates for a period of time to reassure the market in respect of revenue performance alignment with future market expectations.
Progress on OEM 8
As previously notified, the Company won a lifetime £27.5m sales contract with an expected maturity level of £8m sales per year, commencing, (later than planned) in 2022, with a customer described as OEM 8. Again, as previously announced, the order intake for this car has greatly exceeded the customers original volume expectations and they have been in discussions with all the supply chain to explore the capacity availability for significant volume increases. These discussions are being finalised with all suppliers, with updated contract volumes expected early in the new year.
Production of parts on this contract has commenced at Knowsley in line with current OEM 8 contractual requirements and we make no change to guidance in 2022. Our 2022 capacity investment plan can support the customer’s future increased volume requirements, although delays from the wider supply chain remain a risk.
Further contact awards
The Company is pleased to report continuing progress being made on further contract awards and expects to make a further announcement in the near future.
David Bundred, Surface Transforms Chairman, said:
“This announcement summarises the broad position of Surface Transforms over the last three months of 2021. Excellent progress continues to be made on the strategic planbut with work still to do on getting the new Knowsley manufacturing plant to the required daily volume all day, every day. It has been a tough period for all the team, but they have progressively dealt with every issue with their usually tenacity and commitment. We are confident that we are almost through this transformational period and, underpinned by the encouraging news from OEM 8, and other expected contract awards, are looking forward to 2022 with real confidence.”