LONDON (ShareCast) - (Sharecast News) - Surface Transforms updated the market on its trading for the six months ended 30 November on Tuesday, reporting a fall in revenues to £0.51m from £0.52m a year earlier.
The AIM-traded firm said its cash balance at period end was £0.74m, down from £3.3m, to which could be added an expected research and development tax credit in excess of £0.5m, expected to be received in December.

It said that, during the period, it made progress with potential original equipment manufacturer (OEM) customers, as it continued to test products with customers and was making "particularly good" progress with 'German OEM 5'.

Having reviewed the company's quality processes, logistics capability, financial strength and capacity plan, German OEM 5 had approved Surface Transforms as a potential supplier to them.

"It is now officially possible for [OEM 5] to place orders under the condition that the development department is happy with the required performance of ST discs," the customer reportedly said.

In respect to engineering approval, test track testing was said to be underway and on schedule.

To save later car development time, OEM 5 had indicated to Surface Transforms that it intended to approve, at this stage, a pad/disc combination with a new environmentally-friendly pad.

That new pad requirement was lengthening the test programme, and therefore engineering sign-off was now expected in early 2019, which was still within the nomination time frame on the target vehicle.

"The work on passing the OEM 3 rig test is also continuing with good progress having been made on understanding the reason for process variability," Surface Transforms added in its statement.

"This work is expected to complete in the first quarter of calendar 2019, consistent with the next round of nomination dates."

Surface Transforms also reported progress with new capital equipment, confirming it was awarded the environmental standard ISO 14001 ahead of schedule.

The final furnace for OEM production cell one had successfully completed a number of production runs at the supplier's premises, and would now be dismantled and shipped to Knowsley during the next eight weeks.

Those extensive production trials, in combination with a supplier change on a key component, had the effect of building "significant" work-in-progress inventory, totalling an approximate £0.2m increase in the period.

That excess would unwind over the next 18 months, but the board said the recent increase and projected decrease in inventory impacted both current cash and cash projections.

It said the other furnaces were either in production or finalising software installation, with the company expecting OEM cell one to be operational in in summer next year.

"The start of production of 'British OEM 6' had been forecast for the final quarter of the company's 2019 financial year, the Surface Transforms board said in its statement.

"The board is increasingly concerned of a possible, but not yet certain, three to six months delay to the start of production.

"The delay, if it happens, would likely reduce 2019 financial year sales by £0.5m."

As a precaution, Surface Transforms said it had modelled the working capital impact of that, as well as a 'stress test' of 2019 financial year sales, simply repeating last year's sales.

"In both instances the company has adequate cash headroom," it claimed.

"It is additionally worth noting that a delay in the start of production does not of course change the medium-term cash projections as this is a limited edition contract for a specific number of cars which have been pre sold, and which, for regulatory reasons need to be produced before December 2020.

"Nonetheless, in the light of this, and as a matter of prudence, the company has revised its 2019 financial year projections based on a delayed scenario of the British OEM 6 limited edition track car, such revenues being deferred to subsequent periods."

Surface Transforms expected to report its interim results for the six months ended 30 November in February, the board said.

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