Surface Transforms, a Merseyside maker of carbon fibre brake discs for high performance cars, issues profit warning after ‘technical problems’ hit production. Tony McDonough reports
Carbon fibre brake disc maker Surface Transforms (ST) says disruption to production at the end of 2022 and into 2023 is likely to impact on its full-year profit forecasts.
In January, Knowsley-based ST reported “highly specific, but cumulatively significant” production issues with furnaces at the factory in late November and December as volumes were ramped up.
In a trading update on Monday, the stock market-listed firm said the issues had continued into January and February causing production volumes to be lower than expected. The problems have now been resolved but it means the first quarter will now be loss-making.
ST manufactures carbon ceramic brake discs for a number of high performance cars. Customers have included Porsche, Ferrari and Nissan. It is currently supplying brake discs for the Aston Martin Valkyrie which retails at £3m.
In November the company, which is listed on the Alternative Investment Market, announced it had won a £100m deal with an unnamed US automotive giant. It is the biggest contract in the firm’s history and takes its order book close to £300m.
Over the last 18 months the company has been installing capacity to support contracted sales from £2m a year in 2020, to more than £30m a year. in 2024.
Installation of this capacity increase is on track, with installed revenue capacity of £50m per year to be in place by September 2023.
This increased capacity will be sufficient to meet Surface Transforms’ growing customer demand for at least the next 18 months.
Additional capacity also required to provide resilience “catch-up” capacity if any further technical problems were to arise. ST says lack of resilience has prevented it from catching up lost production, compounding its technical problems, over the past six months.
Sales for the first quarter were £1.4m, lower than expected. Monday’s trading update said: “Although the furnaces were trouble free in March, the company initially adopted a low risk strategy on individual furnace loading.
“Therefore the overall total output for the month of March did not fully reflect the underlying dramatic improvement in yield and furnace availability achieved across the month.”
On the sales shortfall it added: “It is premature to assume that these delayed sales will all be caught up in the year. Customer discussions are continuing, and we will update the market as appropriate in due course.
“Accordingly the board is planning its cash needs on the prudent assumption that delayed Q1 sales are not recovered in the short term.
“Despite this, the company will have sufficient cash to continue its extensive three year capital expenditure programme and working capital required as sales increase through the year.”
ST’s board is confident the business will be profitable from Q2 onwards but the statement also said: “Gven the issues experienced in Q1 2023, and the ongoing production ramp in Q2, our overall profitability during FY 2023 is expected to be below market expectations.”
Chief executive Kevin Johnson added: “During the strains of recent months, we are particularly pleased that our customers have understood the issues we have been facing, noted the progress and have continued constructive discussions on future programmes.”