Surface Transforms Share Discussion Threads

[bones] 04/5/2024 12:39

Fft, what I’m really interested in is how comfortably were the inside investors reassured that this raise at 1p for up to £8M will definitely cover the short term working capital shortfall and that most of the production and capacity issues are now broadly resolved?

Surely you had to be very well persuaded of this to encourage you to keep ponying up your money?

Clearly it was all too much for the 15% shareholder, Sneller, who bailed in disgust. This suggests to me a binary situation; either a classic bottom evidenced by painful shareholder capitulation or a black hole vortex down which we are being invited to sling our wads of cash!

[bagpuss67] 04/5/2024 11:46

So against the manufacturing backdrop you describe and what appears to be very weak financial management and governance they took on these huge OEM commitments and also raised a lot of money from shareholders.

What representations were made to these parties? Surely, the extent of the issues the company were not made clear and possibly the position was misrepresented. These representatives were made in RNSs, investor presentations, placing meeting, to brokers and to OEMs.

A lot of roads do seem to be leading back to DB...

[bagpuss67] 04/5/2024 11:11

So they had £4.5m at the end of H1FY23 and £6.1m at the end of FY23. Net proceeds of the raise were £10.1m so they had a cash outflow of £8.5m in H2 FY23 including £4.2m of planned capex.

They have then identified £6.7m of cash utilisation worse than budget cf that FY24 opening cash position of £6.1m. This includes £3.5m they spent on capex out of their FCF as they appear to have been unable to utilise the Capex facility.

There is some explaining to do about the tone of the Jan trading update in the context of the horrendous cash burn at that stage and very low yields being achieved (47% FY23). It doesn't read that badly and I wasn't a concerned as I should have been.

They then appear to have just careered over the edge of a cliff like roadrunner in H1 FY24 trying to keep up with the orders they had taken. Funding the enormous manufacturing cash losses and at the same time spending £3.5m they didn't have on capex, following on from the £4.2m they spent in H2FY23.

Im afraid my jury is now massively out on IM. As she is CFO and presided over this financial calamity. Having heard directly the hubris of DB though my guess is he pushed on despite all the signs that there was an existential risk to the company. I guess he wrote the first sales outlook rns.

But then to so quickly revise the top end of the sales outlook down also showed a material loss of financial control and lack of ability to produce robust forecasts.

There are positive reports about the traction that SE is getting on manufacturing but I wonder what questions have been asked about the woeful state of other management teams. Questions are being asked about how do we trust they that the manufacturing is sorted but how do we know that have a grip of governance and the numbers.

I assume they will get the £3.5m draw down on the capex loan (timing), the net proceeds of the raise but will still be suffering a large FCF cash outflow including, assuming sales ramp, working capital funding requirements and now debt service costs. It is absolutely essential that their medium term and short term cash forecasts are robust. As a restructuring professional I would like to take a look at them. Having an MA in Engineering I'd be interested in the manufacturing aspects as well really.

[bones] 04/5/2024 10:54

Bagpuss, I sympathise on the relatives exposure. Fortunately, I have long since told people that my investment style would never be recommended by a financial adviser! One uncle asked me about Aston Martin so I mentioned SCE in passing as I thought Aston Martin was a basket case! I said SCE is high risk and it will be years before their contracts start making good money but they had big contracts including Tesla, etc. I thought nothing more of it until he later told me he had bought a few SCE and was already down 25%! I’ve heard nothing since from him but I doubt he put much into it as he usually bets on horses at £1 a pop!

[kabrams] 04/5/2024 10:42

A poor investment so far but maybe worthy of a smaller purchase.

[bagpuss67] 04/5/2024 10:32

It will be interesting (depressing) when the results come out and we can piece together a more detailed analysis of just how much cash these guys squandered and on what. Will be a bit vague over this year but we have some information in the placing docs.

Manufacturing yield in FY23 of only 47%. You have to wonder on what basis they took on these sales commitments (that attempting to fulfil nearly bust them) on the back of manufacturing processes which were not fully competent.

Appears to be bordering on being legally negligent/breaching their fiduciary duties. I wonder if they would have been able to undertake their previous raises if they had been candid about the fact that they were unable to manufacture the disks in volume. It appears that they also had little grasp of their forecast performance, downside sensitivities and STCF.

[bagpuss67] 04/5/2024 09:16

I now have the pain of working through various family members and my partner for whom my suggestion to invest here has led to them having lost what is for then a lot of money. It's all well and good me having the fortitude to "fill my boots" but for most people they are not prepared/able to throw "good money after bad" and will be wiped out on these. All a bit embarrassing and difficult.

[bagpuss67] 04/5/2024 08:27

That's is how I read it.

[bones] 04/5/2024 07:30

The Liverpool loan is a facility to be drawn on as and when they need to fund specific capital expenditure on the plant and machinery expansion plans over the two years 2024 and 2025. So it’s never cash in the bank but simply tapped when they’ve got a furnace or such like to pay for on installation etc.

The disclosure talked about the Q4/23 fundraise being used in the six months comprising Q4/23 and Q1/24. Up to the availability of the Liverpool loan, the company had funded its own capex costs so whether they had some left over to pay for from late 2023 and had to ask Liverpool for an advance due to everything else being spent, I don’t know.

All sounds a bit technical but it may have been on those lines.

As usual, whoever is responsible for writing their releases and, more unforgivable, signs them off as approved, doesn’t know the first rule of communication, make the bloody thing clear to its readers so they have no doubt as to its meaning. Either that or obfuscation is their purpose!

For now, they say it’s a timing difference so I’ll take that at face value. That is, the £3.5M funds were spent on capital out of the Nov23 money raised and they’ll draw that cash back from the Liverpool loan.

Whether that’s right is not clear and that is a crime of communication.

It’s not uncommon. You only have to look at emails you get from all kinds of businesses. They seem to be written by the proverbial “YTS boy”.

[bones698] 03/5/2024 23:54

So your saying they used 3.5m of the cash raised because they hadn't got it presumably from Liverpool Council in the time they expected.
If that's the case surely that more money in the bank balance going forward. Or am I misunderstanding.

[pinkfoot2] 03/5/2024 22:37

The £3.5m came up in the placing meetings-it’s in the bag, just timing-I asked.

[bagpuss67] 03/5/2024 20:17

Albert. I am an accountant and it wasnt obvious to me. I will take a look. Maybe they mean they were restricted through covenants or something from drawing the capex line but had capex commitments so suffered a timing outflow.

[bones698] 03/5/2024 19:18

But 3.5m in payments in 6 months + that's how it reads. Can't be right surely. Must have some other implication

[amt] 03/5/2024 19:05

There is a loan from Liverpool Council but can only be used for capital expenditure.

[albert_einstein] 03/5/2024 17:26

Can someone please explain the loan aspect of the utilisation of proceeds

[amt] 03/5/2024 17:04

Somewhat late, surely they should have done a webinar before the placing. The way this has been handled just gets more ridiculous the more info that comes out.
It will be interesting though and I hope they tell us the April production number no matter how bad it is.

[pinkfoot2] 03/5/2024 16:56

We are delighted to announce Surface Transforms will be presenting a live webinar on Hardman Talks at 12:00pm on Thursday 9 May 2024.

[pinkfoot2] 03/5/2024 16:54

My understanding is Sneller didn’t buy back in-either he’s skint or capitulated.

The use of cash over the last 5/6 months above is very accurate

Onwards and updates

[amt] 03/5/2024 16:27

Cavendish had a broker note stating that even after dilution the share price target is 24p.
A 1p placing price is quite bizarre.