Surface Transforms PLC – Trading Update

Surface Transforms PLC – Trading Update

Surface Transforms (AIM:SCE) provides the following trading and operational update for the year ending 31 May 2019 (“FY19”). 

The Board is frustrated to advise that progress on its compensation claim for delays on SOP with OEM6 have not concluded. Given the timing of Surface Transforms’ financial year end, revenues of approximately £250k that had been budgeted in FY19 are now expected to fall in FY20.  In addition, the OEM 6 production schedule has also been revised, with the build rate being loaded to the second half of the 2020 calendar year, therefore deferring FY20 revenues into FY21. However, the delayed compensation claim and phasing will have no impact on the lifetime revenues of the contract and the total number of cars to be built remains unchanged  

Separately, the Company has three near-OEM customers who have each recently suffered either delayed start of production (“SOP”) and/or production problems; This deferment of revenues by OEM 6 and these near OEM customers, as well as increased de stocking by aftermarket distributors (for Surface Transforms’ retrofit market) mean the Board now expects to report revenue in FY19 of approximately £1.0 million.  

The Company continues to have confidence in the significant potential of the near-OEM segment, none of the delayed sales have been lost. However the consistent experience of late SOP and  production delays is causing the Company to review the near-OEM FY20 forecast, which hazards £350k of previously forecast FY20 sales.

Surface Transforms continues to believe that it will be able to announce positive developments on programmes with OEM 5 and the new model at OEM 6  within the next few months. 

As previously reported in the Company’s Half Year Results on 26 February 2019, in respect of the Company’s aerospace activities, management continue to await the outcome of discussions between the landing gear manufacturer, airframe builder and the US DOD on the Company’s request for pre-funding before undertaking any further work on the project.  The Board had previously budgeted £200k revenue in FY20 from this project.  Whilst discussions continue, given the time elapsed already, the Board consider it prudent to remove this income from current forecasts. 

Kevin Johnson CEO commented “it is always disappointing to be reducing guidance but it is important to stress that none of the above impacts the future potential business with OEM 5 or OEM 3 or the new model at OEM 6. Furthermore the bulk of the changes do not reflect any changes to our ambitions or longer-term expectations in the aircraft or  near OEM-market. The Company continues to see a significant business in both segments and will continue to vigorously pursue these opportunities.

“We have modelled the cash on these reduced forecasts and cash at 31 May 2019 is expected to be approximately £1.9m and thanks to the recent  equity fundraise has headroom to reach the period of cash break even, now mid calendar 2020. 

“We continue to believe that we will be able to announce progress on OEM 5 and the new model at OEM 6 in the near future.”

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