New manufacturing strategy

The information communicated within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

2 September 2021

Surface Transforms plc

("Surface Transforms" or the "Company")

New manufacturing strategy

Surface Transforms (AIM:SCE), manufacturers of carbon fibre reinforced ceramic brake discs, is pleased to announce that, following internal analysis and extensive discussions with its furnace supplier partners, it is updating its manufacturing strategy which will have the effect of:

·      saving approximately £10 million in equipping the entire Knowsley factory

·      increasing 2023 sales capacity by £15 million p.a. from £35 million p.a. to £50 million p.a. with no new capital equipment cash requirement

·      reducing implementation time for equipping the entire factory by approximately 18 months

·      significantly increasing capacity implementation flexibility beyond 2022 as the business grows over the next 2 to 3 years

·      reducing Surface Transforms' projected carbon footprint using more environmentally friendly furnace technology

By way of background, the Company has until now, had the strategy of equipping the Knowsley factory in a series of five modular, relatively independent but identical production cells, being built at one cell roughly every 18 months at a cost of approximately £10 million per cell. Cell One is complete. The Company raised £20 million in February 2021 to equip Cell Two and to provide additional working capital enabling site capacity for £35 million sales when complete in early 2023.

Following the fund raise, the Company and its furnace supplier partners examined the options for building not just Cell Two but also ensuring that the factory will have the required level of equipment over the next few years. The Board subsequently concluded that improvements could be made to the previous manufacturing strategy, noting that:

·      The primary objective remains to ultimately provide a factory with sales capacity of £75 million p.a.

·      However, the Company will no longer build separate production cells but approach the project as a plant-wide "single production line" project

·      This includes seeing the procurement of the furnaces (about two thirds of the cost and all the lead time) as being very different from that of the machine tools and other equipment

·      Following advice from the furnace suppliers and internal evaluation the Company will now procure a smaller number of larger furnaces to support the sales capacity target for the Knowsley factory of £75 million p.a.

·      The immediate effect is to raise the 2023 capacity availability from the fundraising projection of £35 million p.a. sales to £50 million p.a. sales with no impact on the 2022 cash requirement

·      The procurement of the other machine tools is now in "buckets" of circa £5 million p.a. capacity (previously circa £15 million p.a.) giving the Company shorter lead times and greater flexibility to deal with shorter lead time customer requests that we have seen more recently from some customers. It should also be possible to asset finance a large proportion of the machine tool purchases as the Company moves into profitability

·      The nearer term additional production capacity that this new strategy provides means the Company can await contract awards before needing to buy further furnaces to increase sales from £50 million to £75 million

·      During the fund raise the Company stated that it expected it would cost approximately £50 million to provide sales capacity of £75 million p.a. of which £10 million had been spent and the fund raise included £10 million for Cell Two capital equipment. This total requirement is now reduced to £40 million, a saving of £10 million

·      Working capital cash needs remain unchanged. This announcement only impacts capital expenditure

Upon completion of this project there will no longer be any self-contained complete production cells in Knowsley. The technologies will be grouped together, and work-in-progress will flow from one technology to the next in a lean environment. The machines in the current SVP Cell and production Cell One will be moved to the appropriate new location in the new factory layout.

Kevin Johnson, CEO, commented:

"At the time of the fund raising we said that we thought there could be sufficient demand to fill the Knowsley factory by 2025, albeit the sales were then, and are still now, only partially contracted. Our continuing discussions with existing and potential customers together with increasingly encouraging test results have not only lifted our confidence in this view but led us to the conclusion that we may require this capacity by 2024. This new manufacturing strategy will achieve the primary capacity objective with the added benefit of reducing overall capital expenditure. There are numerous positive cash implications, and we continue to work with our customers to convert the significant number of active projects into firm agreements to fill this capacity."

For enquiries, please contact:

Surface Transforms plc.                                                                                   +44 151 356 2141

David Bundred, Chairman

Kevin Johnson, CEO

Michael Cunningham, CFO

Zeus Capital Limited (Nominated Adviser and Joint Broker)                        + 44 203 829 5000 

David Foreman / Dan Bate / Jordan Warburton (Corporate Finance)

Dominic King (Corporate Broking)

finnCap Limited (Joint Broker)                                                                         +44 207 220 0500

Ed Frisby / Abigail Kelly (Corporate Finance)

Richard Chambers / Barney Hayward (ECM)

About Surface Transforms

Surface Transforms plc. (AIM:SCE) develops and produces carbon‐ceramic material automotive brake discs. The Company is the UK's only manufacturer of carbon‐ceramic brake discs, and only one of two mainstream carbon-ceramic brake disc companies in the world, serving customers that include major OEMs in the global automotive markets.

The Company utilises its proprietary next generation Carbon Ceramic Technology to create lightweight brake discs for high‐performance road and track applications for both internal combustion engine and electric vehicles. While competitor carbon‐ceramic brake discs use discontinuous chopped carbon fibre, Surface Transforms interweaves continuous carbon fibre to form a 3D matrix, producing a stronger and more durable product with improved heat conductivity compared to competitor products; this reduces the brake system operating temperature, resulting in lighter and longer life components with superior brake performance. These benefits are in addition to the benefits of all carbon‐ceramic brake discs vs. iron brake discs: weight savings of up to 70%, longer product life, consistent performance, reduced brake pad dust and corrosion free.

For additional information please visit www.surfacetransforms.com