Bullish Surface Transforms in talks on £13m capacity-related loan

Knowsley-based specialist brakes manufacturer, Surface Transforms, is bullish about its prospects, despite continued ongoing issues in the production cycle.

It revealed, in a trading update for the 10 months to October 31, 2023, that it is in talks on a £13m loan linked to ramping up capacity.

Early last month the company, which makes carbon fibre reinforced ceramic brakes for high performance cars, as well as aircraft, announced a new order worth more than £100m over a seven year period with one of the world’s largest automotive OEMs (original equipment manufacturer).

Today’s update revealed that sales in the four months to October 31, 2023 were £3m, bringing year-to-date sales for the period to October 31, 2023 to £6.3m.

While October sales of £1m was the best month of sales in 2023, it was lower than management had previously budgeted.

It said the previously reported technical problems have now been overcome. However, the company continues to face some challenges in its production line, including single points of failure and a learning curve on the maintenance of new equipment.

These challenges, which are being resolved, are hindering the business from creating sufficient capacity resilience and are constraining a production ramp up.

Consequently, the company is prioritising new capacity on these single failure points while building up work-in-progress buffer stocks to mitigate the learning curves on key pieces of equipment unique to the business.

In parallel to these actions, revised operating processes and training has been accelerated to deal with improving maintenance of key pieces of equipment. The company has also made significant changes to operations management, including, but not limited to, the appointment of a new chief operating officer, Stephen Easton.

Surface Transforms said output continues to increase, and, as noted, October was the best sales month in 2023, but not yet at the desired rate.

In the light of these challenges, the company is now planning its cash needs and customer commitments based on a shallower ramp and now expects to reach the required rate of production in the first quarter of 2024, later than previously forecast.

As a result, the company is reducing its sales guidance for the year to December 2023, to £8.6m.

However, overall, the outlook for 2024 to 2027 continues to remain very positive reflecting contracts in series production and recent new business announcements, with capacity being installed to fulfil these awards.

The company is continuing to install the capacity – capital expenditure of approximately £8m in 2023 and £9m in 2024 – required to both meet increasing customer demand and providing the necessary resilience to overcome single points of failure.