Surface Transforms Plc (LON:SCE), manufacturers of carbon fibre reinforced ceramic automotive brake discs, has announced its audited results for the twelve months ended 31 December 2024.
Financial highlights
· Revenue increased by 13% to £8.2m (2023 : £7.3m), due to a 21% increase in disc sales
· Gross margin of 50% (2023 : 57%), reduction due to movement in product mix towards customers with higher future volumes
· Net research costs pre-capitalisation of £15.4m (2023 : £12.9m) due to extensive programme of initiatives to improve manufacturing efficiency and yields
· Impairment of fixed assets of £6.5m (2023 : £9.2m)
· Loss after taxation was £22.3m (2023 : £19.6m)
· Loss per share of 2.31p (2023 : 7.92p)
· Cash used in operating activities of £14.0m (2023 : £10.3m)
· Cash as at 31 December 2024 of £0.5m (2023 : £6.1m)
· £9.5m equity placing and open offer to support ongoing working capital needs in the year
· £5.1m ERDF loan advanced to fund capital investment
Customer highlights
· Six multi-year OEM contracts in series production
· Customers have been highly supportive through direct funding of working capital and operational expertise, which has continued into 2025
· Confidence in our business and desire for our product remains high
Operational highlights
· Extensive programme of technical, personnel and process changes in the year to reduce equipment down time and scrap rates
· Capital investments of £6.2m (2023 : £9.1m) in the year
· Capacity constraints progressively reduced with built volumes 29% higher than prior year, which has continued in 2025 year to date
· Focused on improving yield and process capability of all operations
Board changes
· David Bundred retired as Chairman on 16 Sept 2024
· Ian Cleminson appointed as Interim Chairman on 6 November 2024 and Chairman on 20 May 2025
· Post year-end, Isabelle Maddock announced her intention to retire as CFO and Steve Harrison joined as interim CFO (non-board director) on 17 March 2025
Posting of Annual Report and Notice of Annual General Meeting
Surface Transforms’ Annual Report and Accounts for the year ended 31 December 2024, together with a notice convening the Company’s Annual General Meeting will be posted to shareholders today and will be available on the Company’s website www.surfacetransforms.com.
The AGM will be held at 98 King Street, Manchester M2 4WU on 22 July 2025 at 11.00 a.m.
Chairman’s Statement
2024 proved to be another difficult year which was dominated by the challenge of delivering consistent volume production with yields that would result in a viable and profitable operating model. Progress was frustratingly slow and resulted in a funding requirement leading the Company to raise fresh equity in May 2024 and seek financial and operational support from key customers post November 2024.
Against this backdrop the customer base has been hugely supportive, and the business has shown incredible resolve. Fundamentally however, the performance has just not been good enough and shareholders are right to be disappointed.
Sales Progress
The Company grew modestly; 13% year on year revenue growth. Similar to prior periods, the business experienced demand levels beyond its available supply.
Progress on Operations
The inability to deliver higher production volumes stems from three broad categories:
· an inability to achieve the target yield from current capacity;
· failure to deliver a consistent and repeatable process; and
· delays in installing capacity.
As the Company scaled production, mechanical and material science issues emerged with upgraded or new equipment that were not apparent during the development phase resulting in excessive down time and low yields. Since the year end, operational efficiency and consistency has seen a continued improvement, driven by equipment upgrades, improved processes, and the impact of operational support from customers.
The Company is executing a capital investment program totalling £13.2 million, funded through ERDF support, aimed at enhancing the manufacturing process. This investment is pivotal to achieving a sustainable and profitable operating model. It underpins the Company’s ability to meet projected demand, drive down operating costs, improve production yields, and realise sustainable cash flows.
As at 31 December 2024, £5.1 million of the programme had been deployed. The remaining £8.2 million is expected to be spent over the course of 2025, weighted towards H1 with full spend anticipated by year-end. This programme will address future capacity limitations, positioning the Company to meet its commercial and operational objectives with greater efficiency and resilience.
Personnel
The transition to full-scale production has continued to place significant demands on our team. As with any period of sustained operational change, the resulting pressure has led to notable staff churn, which, while disruptive at times, has also created opportunities to strengthen the organisation.
Attracting and integrating skilled professionals across key technical disciplines, including mechanical, electrical, and heat treatment engineering, as well as maintenance is key to building depth and resilience. In parallel, we have expanded our quality and operations teams and invested in the development of senior management to support the evolving demands of the business. Again, customer operational support post November 2024 has been pivotal to the improvement we are now realising. A key focus for the Board this year has been investing in our people, with a particular emphasis on leadership development through external support.
Progress with customers
During the year we ensured that all customers were kept fully informed of our operational difficulties and ability to deliver products at volume. The major customers have been hugely supportive, offering both financial and operational assistance. Beyond these major customers, we are maintaining our customer base of small niche vehicle builders (“Near OEMs”) as they offer a degree of flexibility in our operational planning and have only a marginal impact on capacity in a market segment that is growing and larger than we previously believed.
Strategic discussions on commercial agreements specifying multi- year volumes and prices as well as customer manufacturing support, received through prepayments (£11.9m at 31 May 2025) are well advanced.
Current trading and outlook
The Board expects 2025 financial performance to reflect continued growth, as production capacity and yield rise as a result of improvements made throughout the organisation. The issues (previously reported) of inconsistent yield in Q1-25 continues to be addressed with resultant improvements in Q2-25. Management intend to report on the output for H1-25 on or before the Annual General Meeting on 22 July 2025, where this can be discussed directly with shareholders.
Summary
There is no doubt 2024 has been a year of disappointment and frustration. Despite this the support of customers has been incredibly strong and reflects the high value placed on our product and technology. The financial and operational assistance that has been forwarded to the Company has been both welcomed and key to any progress made.
Since November 2024 the Board has been focused solely on operational improvement and cash management. We are starting to see sustainable improvements in output, yield and quality that gives us a degree of confidence that 2025 will be a much better year. While there remains a lot still to do we are encouraged that a pivotal change has occurred.
Finally I want to thank all the employees for their dedication to the Company in what has been a highly stressful period and shareholders for their patience and support.
Financial Review
Revenue
Revenue increased 13% to £8.2m in 2024, driven by a 21% increase in discs sold in the period.
Movement toward meeting the higher volume, but lower price, OEM’s rather than small dealer sales meant the unit price fell slightly.
Gross margin
Gross profit margin decreased to 50% due to the above shift in product mix and costs incurred in efforts to improve capacity and yield.
Other Income
During the year, we recognised £0.5 million in other income relating to the resolution of a historical equipment supply matter. While specific details remain confidential under the terms of the agreement, this represents a partial recovery in respect of the matter reported in the prior year.
Overheads
Administrative expenses rose 11% to £6.0 million in 2024, up from £5.4 million in 2023. The increase was primarily driven by a combination of factors, including increases in audit-related fees and additional spend on external expertise to support technical accounting and disclosure requirements. Further increases arose from higher legal fees across a variety of matters and elevated repairs and maintenance costs.
Our continued commitment to research and development (R&D) remains a key driver of innovation and future growth. During the year, pre-capitalisation R&D expenditure increased by £2.5 million to £15.4 million (2023: £12.9 million). Investment was primarily directed towards process and equipment development, the resolution of technical challenges, and the establishment of repeatable processes for higher-volume production. As these development hurdles are progressively overcome, it is expected that the level of spend will reduce.
During the year, we recognised an accelerated depreciation charge of £0.6 million following a review of the useful economic lives of certain assets. This reflects the Group’s transition to newer technologies and the associated replacement of older generation equipment. The adjustment aligns with our capital investment strategy and ensures our asset base continues to reflect its operational utility and future economic benefits.
In accordance with IAS 38 Intangible Assets, no R&D costs were capitalised during the year in relation to the development of our layered products because it was not possible to demonstrate how the development costs will generate future economic benefits using the principles of IAS 36 Impairment of Assets. See Note 4 for details of the impairment assessment for the related CGU performed at 31 December 2024.
Impairment
As part of our annual financial review, the Company conducted an impairment assessment in accordance with IAS 36. Based on a value-in- use analysis reflecting management’s current expectations of future performance, an impairment charge of £6.5 million has been recognised in the year (2023 : £9.2 million), allocated on a pro-rata basis across all non-current asset categories, including fixed assets, intangible assets, and contract fulfilment assets.
The assessment reflects updated forecasts and a risk-adjusted view of operational delivery and performance timing. While the impairment reduces the carrying value of certain assets, management continues to view the asset base as integral to the Company’s ability to fulfil customer contracts and support future revenue generation.
Further details, including key assumptions and sensitivity analysis, are provided in Note 4 to the financial statements.
Net loss
Net loss in the year (after taxation) £22.3m (2023 £19.6m).
Cash Flow
Gross cash at the year-end was £0.5m (2023: £6.1m), supported by a £9.5m fundraising to facilitate working capital growth. In addition, £1.6m of cash advances were received from a key customer during the final quarter of the year to further support working capital. Customer support has continued into 2025 including further working capital funding, increased pricing and funded manufacturing expertise. At the time of writing, positive discussions with key customers regarding further support remain ongoing.
Balance Sheet
Inventories increased by £0.9m and trade and other receivables rose by £0.7m, reflecting higher activity levels. Contract fulfilment assets decreased by £0.7m as costs held on the balance sheet were released in line with the transfer of related goods and services to the customer (see Note 15 for further details). Trade and other payables increased by £1.9m, which included a cash advance received from a key customer.
Equity
During the year, the Company successfully raised £9.5 million in equity funding to support working capital requirements. Despite this, after the net loss of £22.3m, net assets decreased by £13.4m
Loans
In December 2023, the Company secured a £13.2 million loan facility from the LCR UDF Limited partnership. This loan originates from Liverpool city region’s Urban Development Fund, which is part-funded by the European Regional Development Fund (ERDF). The loan is used to invest in new manufacturing facilities, thereby increasing our production capacity. It is solely for capital purposes and can be drawn down for eligible capital projects up until 31 December 2025. Similar to a revolving credit facility, the loan liability is only recognised once funds are drawn down. As at 31 December 2024, £5.1m (2023: £ nil) had been drawn down. The loan covenant position is further described in the going concern section of this report. As a result of a covenant breach as at December 2024, the loan is presented as a current liability. Further details, including the post-year-end waiver, are provided in Note 16 – Interest-bearing Borrowings and Lease Liabilities
Going Concern and Material Uncertainty Statement
The continued operation of the Company as a going concern is dependent on its ability to successfully navigate the current scale-up phase, where the efficiency of the production process will determine the sales volume achievement, since demand is running well ahead of capacity. The Directors have identified two key areas of material uncertainty that may cast significant doubt over the Company’s ability to continue as a going concern: cost and yield challenges and flexibility in commercial arrangements and level of committed funding.
1) Cost and Yield Challenges
· Cost of Manufacture: Inflationary pressures continue to pose a risk to raw material and labour costs. In response, the Company has renegotiated current pricing across all major OEM contracts and is pursuing ongoing investments in scalable technology and process efficiencies. These initiatives are expected to reduce manufacturing costs and support margin sustainability, but the accuracy of that expectation remains to be demonstrated consistently.
· Yield: Achieving consistent improvements in manufacturing yield remains critical to meeting customer demand and achieving long-term cost efficiencies. The production process is inherently complex, requiring specific operating metrics, particularly around yield, to be consistently met. Lower than expected yields not only reduce the number of saleable units, thereby limiting revenue, but also increase production costs due to higher rates of disc scrappage. This adversely impacts profit margins and cash flows.
Management has taken proactive steps to address these challenges. Several successful upgrades to the manufacturing process were implemented during the year, with further improvements and the involvement of external technical expertise continuing into 2025. These initiatives are expected to materially reduce scrappage rates and enhance overall efficiency.
However, while initial improvements have been encouraging, the underlying processes are still maturing, and several months of sustained high yields will be required before this uncertainty can be fully mitigated.
Until such consistency is demonstrated, Management believes there remains material uncertainty. Any unforeseen setbacks in yield performance could hinder the Company’s ability to fulfil contractual obligations, potentially leading to delays, renegotiations with customers, or the need for additional funding.
Furthermore, as an exporter primarily to the US, the Company is mindful of the varying trade and tariff environment. Having established Incoterms transferring title for goods at UK dispatch with the majority of its customers, the Company believes the impacts will be more macro in terms of overall price pressures rather than directly within the supply chain. The Company has advanced mid and long term price negotiations with customers to limit tariff and currency pressures to the highest extent possible.
2) Flexibility in Commercial Arrangements and Level of Committed Funding
The Company’s future cash position is heavily dependent on two further factors: the successful finalisation of new commercial contract terms with OEM partners and ongoing support from the Liverpool Combined Authority (“LCA”) through waivers for breach of covenant on the ERDF loan.
· Commercial contracts: The timing of finalising full commercial agreements specifying multi- year volumes and prices as well as possible loan conversion for customer manufacturing support, received through prepayments (£11.9m at 31 May 2025) remains uncertain. Any unforeseen delays in securing these agreements or accelerated demand for recovery of the prepayment could lead to funding gaps or breaches of loan covenants, which would further restrict access to future funding and thereby put additional pressure on cash reserves.
· ERDF loan: During 2024, the Company made further drawdowns on the ERDF loan utilising £5.1m of the £13.2m facility. In December 2024 the ERDF covenants were again breached and this position remained unrectified in March 2025. However, the LCA have been willing to waive the December breach in recognition of its temporary nature ahead of a much-improved long term outlook and it is anticipated that further waivers will be given in 2025 until revised covenants are agreed. Further permitted drawdowns have occurred during 2025 and it is anticipated that the £13.2m facility will be fully drawn by the end of the year. Whist Management are confident that the unwavering support from the LCA will continue, should covenants be breached and a further waiver not granted then the Company would be required to raise funds from other sources. Therefore, the requirement for covenant waivers contributes to material uncertainty.
The Directors have modelled a range of scenarios incorporating the year ending December 2025 and half year to 2026 with base case and downside cases exploring the impact on liquidity from reductions in the key areas of revenue, cost and yield. They have also noted that, since the balance sheet date, the Company has made significant progress in the above areas on price and volumes and tangible unit cost reductions when compared to 2024.
Further information on the scenario modelling and key judgments underpinning the going concern assessment is disclosed in the notes to the accounts.
The full-year 2025 outlook remains aligned with Management’s base case expectations of revenue and EBIT as well as the achievement of cash positive monthly flows by the second half of the year. However, the Board acknowledge that uncertainty remains regarding yield performance, cost control, and the timing of commercial agreements.
As such, there exists a material uncertainty that may cast significant doubt over the Company’s ability to continue as a going concern. Should these challenges persist or worsen in the short term, they may adversely impact operational performance, including sales and EBITDA generation, which are essential for transitioning from a loss-making to a cash- generative business.
Notwithstanding the material uncertainty outlined above, after due consideration the Directors have a reasonable expectation that Surface Transforms has sufficient resources to continue in operational existence for the period of 12 months from the date of approval of these financial statements. Accordingly, the financial statements continue to be prepared on the going concern basis and do not contain the adjustments that would arise if the Company were unable to continue as a going concern.
