Delayed London Stock Exchange - 06:39 2022-12-08 am EST
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Surface Transforms secures contract but frustrated on other challenges

11/24/2022 | 09:38am

(Alliance News) - Surface Transforms PLC on Thursday said that while its new contract with US automotive company, OEM 10, was a considerable strategic win, production challenges throughout the year had been "frustrating".

Surface Transforms is a Liverpool, England-based manufacturer of next-generation carbon-ceramic brake discs for automotive and aircraft applications.

The company's recent agreement with OEM 10, which establishes Surface Transforms as the sole supplier of carbon ceramic brake discs on two model variants covering front and rear axles, is its second contract with the company. OEM stands for 'original equipment manufacturer'.

Revenue from the deal is expected to be over GBP100 million, for a period of 6 years.

Production is scheduled to begin in 2024, followed by production revenues in the first half of 2025. Sales from this contract award are expected to be around GBP20 million per annum, tailing off in the later years.

Surface Transforms shares were trading 9.9% higher at 42.57 pence each in London on Thursday afternoon.

Surface Transforms said the contract, which is the largest it has been awarded to date, would see its discs replace those historically provided by its main competitor.

It did not specify who its competitor was.

However, addressing its projected performance for the year, the company said it now expected sales to be lower than originally forecast at GBP6.5 million.

This was attributed to technical issues at its customer, OEM 8, which delayed the production ramp and ended up taking more time to solve than had initially been anticipated.

Surface Transforms argued that while the delays were "disappointing", the value of the contract remained unchanged at GBP100 million.

Over the year, the company has also faced its own production challenges. Though these have now been "materially rectified", and were neither the reason for the ramp-up delay nor the bulk of its sales shortfall, it noted that they limited its ability to build a finished stock buffer.

Surface Transforms now expects profit and cash to be around GBP3 million less than previously anticipated.

In other news, deliveries of the Phase 2 equipment projected to raise capacity to GBP50 million have continued. Although there are, once again, some project delays associated with supplier supply chain problems, the company said these are broadly covered by project timing contingencies.

"The OEM 10 contract is an extremely significant strategic win, achieved against vigorous technical competition. Moreover, it underpins the key message of our recent fund raise on the need to be installing capacity in advance of contract wins, thereby giving confidence to our customers of our ability to supply. We greatly enjoy working with OEM 10 and look forward to a developing relationship," said Chief Executive Officer Kevin Johnson.

"However, the separate combination of customer [start of production] delays and our own challenges is frustrating. The general issue of delays in both SOP and the subsequent production ramp has been previously reported and was the reason for the substantial increase in timing contingencies included in the recent fundraising guidance."

The company's guidance for 2023 remains unchanged.

By Holly Beveridge;

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