Surface Transforms plc (LON:SCE) has announced that it has signed a new contract with its existing customer, OEM 8 with a contract value of approximately £100m. This contract replaces the previously announced contract from September 2020 which was valued at approximately £27.5m. This increased contract value of over £70m is driven by both significantly increased demand for this particular model of OEM 8 and the contract being extended to 2027.
The contract remains priced in pounds sterling and increases the Company’s sales forecast by £4m in 2023, £11m in both 2024 and 2025 and by £20m in both 2026 and 2027, taking the Company’s overall lifetime order book to over £180m.
By way of background, in September 2020 the Company announced its selection by OEM 8 to be the standard fit, sole supplier of the carbon ceramic brake disc on both axles of a new model variant. At that time, the start of production (“SOP”) was scheduled for the summer of 2021 and the contract was for 3 years with an estimated lifetime value of £27.5m. Whilst OEM 8 delayed the SOP (now scheduled for spring 2022), the market response to the car has exceeded their order expectations; the customer has therefore been in discussions with all impacted suppliers to increase capacity and output.
This new contract clearly has capacity and overhead implications. In several separate announcements, the Company has said that by mid 2023 we will have installed capacity for £50m sales p.a. which is enough to accommodate the extra volumes from this new contract. However, our staffing and infrastructure overheads are currently in line with the previous forecast of approximately £17m sales for 2023. Accordingly, the Company now needs to accelerate the recruitment and infrastructure actions required to support these much higher sales, which the Board currently estimates will result in current year overheads (mostly people related) increasing by £2.5m.
Kevin Johnson Surface Transforms (CEO) said: “This important announcement maintains the recent momentum of significant commercial success for our brake discs. This success is of course being accompanied by our parallel focus on installing and commissioning the new plant to produce this huge increase in sales, a project that is continuing apace. We look forward to showing shareholders the progress on both contracts and production at our Capital Markets Day in April 2022.”
