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Surface Transforms Plc

Surface Transforms plc Contract Awards

Kevin Johnson, CEO commented: “This £6m lifetime sales contract award from OEM 6, is very good news and represents another crucial step in achieving Surface Transforms’ profitability objectives.

“Arguably of equal importance however, is the strategic implications of these two contract awards; confirming that once we have a position with a customer, we can (in the case of OEM 6) grow from that base and/or (in the case of Koenigsegg) maintain that position as they change models. This capability, reflecting both the customer’s experience of the product and our supply chain performance, will be crucial in becoming a significant automotive supplier as we further develop production relationships with the mainstream OEMs.

“In the near term we are also delighted that the commercial settlement on the programme delay has been amicably settled, the immediate cash injection of approximately £300k is a welcome addition to our cash headroom.

“Moreover we expect this announcement to be the start of further positive news flow, in the near term, as we look to conclude current discussions with German OEM 5.”

Surface Transforms plc (LON:SCE) today announced that it has been selected as the tier two, carbon ceramic brake disc supplier on a new car to an existing British OEM customer (previously described as OEM 6). The Company has also concluded a commercial settlement on the existing contract with OEM 6 in respect to the delay to start of production (SOP) of the original car in that contract. Finally, the Company has been nominated by its long-standing customer Koenigsegg as a tier one supplier on the Jesko car that will replace the existing Regera car.

OEM 6

The new contract award by OEM 6 is for a limited edition car to be produced over three years with SOP towards the end of calendar 2021.  The car was announced at the 2019 Geneva Motor Show.  The Board estimates the contract will generate lifetime revenues of £6m (excluding spares) to the Company.

Separately, and in recognition of the delays to SOP of the original car in the first contract, OEM 6 has agreed to pay the Company circa £300k cash relating to the direct costs on discs, that had been partially completed prior to notification of the delay in SOP. Whilst this adds £300k to near term cash it will not impact the gross margin quantum expected in FY20; the margin, which is unchanged over the life of the contract, will be received in line with recent guidance on the new production delivery schedule. This existing contract is still expected to generate revenues to the Company of circa £2m over two years starting in calendar 2020.

These two contracts provide an order book of circa £8m with OEM 6 over the next five years and discussions continue regarding other future models with significantly higher anticipated production volumes.

Koenigsegg contract

The second new contract is with Koenigsegg, another existing Surface Transforms customer, for the Jesko, their new 300 mph supercar also launched at the recent Geneva Motor Show.  The Jesko replaces the Regera model with an expected SOP in Autumn 2020.  Surface Transforms will be the tier 1 supplier for the carbon ceramic brake disc with annual revenues of circa £300k.  Similarly to OEM 6 discussions regarding future models that will add volume rather than replace existing revenues, remain ongoing.

OEM 5 update

Discussions with German OEMs continue with positive progress being made and the Board remain confident of announcing developments on German OEM 5 in the near future.

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Disclaimer: Statements in this article should not be considered investment advice, which is best sought directly from a qualified professional.