Surface Transforms management presented a fascinating webinar on 21 April 2023, focusing on results for FY 2022 and the resolution of production issues. Kevin Johnson, CEO, gave the audience much detail on the way the company has overcome strategic supply chain challenges and developed bespoke furnace materials in order to bring production capacity back up to required levels.
The most important points discussed in the webinar were the full resolution of commissioning problems associated with the ten-fold ramp up in production capacity; the healthy growing pipeline, both of existing contracts and ones on which firm prospects are held; and the emphasis on the high barriers to competition.
Over the past year there have been the inevitable technical teething problems across a number of processes, all bar one of which were resolved promptly, but not without the difficulties associated with a ten-fold volume uplift. The issues with the furnace required a more fundamental redesign, taking time to execute and test, and the SCE engineering team has provided the answer. SCE management has been very open through public statements since the start of this year, thereby creating good justification for the current confidence in the full engineering resolution.
Through the problems of this quantum increase in production, all SCE customers have been fully engaged with the process. Indeed, we note the order book has lengthened through these issues. The prospective contract pipeline is £393m, with a major six-year firm order won in November 2022. This increased the confirmed order book to just under £300m, and most importantly the prospective pipeline replenished subsequently.
SCE’s exponential growth prompted the scale-up which had some turbulence, and this understandably is a big short-term news focus. These technicalities affected trading in October 2022 to April 2023. The 2022 financial period resulted in a loss, as indicated by the trading update provided late in 2022. The cash position remains strong, and guidance is for the company to remain cash positive as a major ongoing capital expenditure programme is executed. 2022 also was notable through its 65% increase in R&D and the ongoing staffing up both to support the rising customer roster and to expand the engineering team further.
Current firm contracts are with global majors and include US, UK and European OEMs. The company confirmed its strong position in costs, and especially noted how it has coped well so far in gas and electric costs and is able to fix costs at advantageous prices. It is still on track to halve its unit costs from here, having halved them already in recent years. The presentation also confirmed supply chain strengths and explained how staffing and infrastructure plans are progressing, in detail.
Turning to the future, once again SCE confirms full £20m pa capacity availability in 2H23 and how the £50m pa capacity will be online for availability later in 2H23. There is a planned series of expansion programmes; the £50m figure provides both growth and resilience. Then in 2024 the capacity will increase to £75m pa, to provide capacity in 2025. The 2026 capacity planning is already underway. It is noteworthy that the £393m future pipeline alone, if executed over a six-year period, would mathematically lead to £65m pa sales – and adding this to the current £295m firm order book gives over £110m pa illustrative revenue. The £75m capacity is on track, but clearly much work is needed to deliver it. The key issue – the furnace – has been resolved and the company has shown its engineering excellence in resolving this itself. The company is capacity-constrained, not demand-constrained.
Surface Transforms is an expert in the development and production of carbon-ceramic materials and the UK’s only manufacturer of carbon-ceramic brakes for automotive use. The company utilises its proprietary next-generation carbon-ceramic material – CCST – to create lightweight brake discs for high-performance applications, including automotive and aircraft brakes. The company has won a number of contracts with leading OEMs in the car industry.
