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Surface Transforms – argues “these results are encouraging”… but looks to be firmly heading to cash crunch ahoy AGAIN!

By Steve Moore | Wednesday 13 June 2018


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


A “Pre Close Trading, Customer and Operations Update” from Surface Transforms (SCE) includes CEO Kevin Johnson stating “these results are encouraging with good progress being made in virtually all areas”. The shares have responded... er, lower to 18p…

“Financial highlights” commence “revenue increased for the year to £1.4m (2017: £0.7m) broadly in line with market expectations” - i.e. slightly behind market expectations. “Customer and Operations Highlights” though commence “work with Aston Martin continues to progress and the board still expects start of production in Q1 2019”. It later added “the resultant revenues following start of production are particularly important to the company because they are expected to be sufficient for the company to then immediately generate ongoing net cash inflows from operations (assuming continuing revenues and R&D tax credits at current levels)”.

The “Financial highlights” though also include “capital expenditure in the year was £2.0m” - and it’s later added “to ensure continued engineering progress, we now intend to maintain a higher level of R&D (approximately £0.2m higher than originally budgeted in FY18/19)”. The company also highlights “cash at 31 May was £0.9m (2017: £1.5m) to which should be added an expected November 2018 R&D tax credit of approximately £0.5m (2017: £0.5m) and £0.25m of above average trade receivables resulting from the timing of invoicing large individual items of development income shortly prior to the year end”.

I though highlight that a net £3.4 million of new equity was raised after the prior year-end – making the stated £1.5 million comparison duff.

Results for the company’s half year ended 30th November 2017 showed cash of £3.3 million – so even with the stated ‘should be addeds’, forget the future expected “net cash inflows from operations” and “we are serving a potential £2bn automotive brake disc market where a monopoly supplier currently has sales of over £100m. Our customers want us to succeed in providing a second source of supply to the industry”, it’s already looking to be firmly heading to cash crunch ahoy AGAIN!

“These results are encouraging with good progress being made in virtually all areas” - an area in which it’s not being that minor one of financially, Kevin? Natch, at such a juncture, this currently remains on the bargepole list.


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