Surface Transforms Share Discussion Threads

[bomber13] 01/5/2022 19:10

I was fortunate enough to go on the Surface Transforms capital markets day last Wednesday , where , along with at least 30 other interested parties , we were presented to by the full board ( bar the most recent NED appointment ) , and shown around their Knowsley factory near Liverpool . The previous day they had done the same thing with at least 30 institutional investors , and , because of unsatisfied demand , there will be a further capital markets day on 7th July . This level of interest on its own tells you that there is a very interesting story slowly but surely being disseminated .


We were all reminded at the start of proceedings that Surface Transforms is extremely sensitive not only about its customer base but also its processes and technology , and we were asked to be respectful of that . With that in mind , I will restrict the comments below to my own interpretation of what was said , what was on show , and what is already known -


1) ST is the much smaller of only two global suppliers of carbon ceramic brake discs , the main player being Brembo SGL , part of Brembo GMBH , with some 95% of the current market . OEM auto manufacturers do not like to have sole suppliers of components , and , until ST arrived on the scene as a serious player , this factor will have restricted the global uptake of carbon ceramic discs , now estimated at US$350m pa , but with a highly visible path to US$2.2bn pa , which would still represent only 2% of new car sales volume .


2) The advantages of carbon ceramic brakes are well known , but worth repeating . They are corrosion free , they are up to 70% lighter than iron discs , so aiding fuel efficiency and air quality , they are far more durable , they have an extended life expectancy , and , since they produce far less brake dust , they are a perfect ESG component , particularly lending themselves to the growth in EV's . ST's carbon ceramic disc is not only competitively priced versus Brembo's , but claims to be a more superior product because of its better heat dissipation , the unique technological know-how behind it , and its complex manufacturing process . Moreover , this latter point has been validated independently .


3) With ST's growing acceptance as a tier 1 OEM supplier has come a growing visibility to its order book . From barely £2m at the end of 2018 , the order book now stands at £180m , over 10X the assumed £14.5m outcome for the December 2022 year . ST's brokers have around £20m pencilled in for 2023's turnover , and £30m for 2024 with OEM 8 , a large global car manufacturer , taking the lion's share . This latter customer increased its original September , 2020 order worth £27.5m to £100m in March , 2022 for the same vehicle because of greater forecast volumes and a longer model life . ST also made the point that OEM 3 ( incorporating OEM's 2 & 4 ) , a German sports car manufacturer , no longer merits special attention , whilst still retaining the potential to be a large market opportunity for ST eventually . Overall pipeline discussions typically take place 2 or 3 years before production , and , if anything , lead times are shortening somewhat .


4) The Knowsley plant covers 55/- sq ft , and , in line with the new manufacturing strategy announced in September , 2021 , manufacturing is being changed from a batch driven cellular model to a plant-wide single production line project . This new system will offer several advantages over the previous plant layout including improved labour utilisation , mechanical synergies , much improved energy efficiency , and a faster pathway to £50m of turnover capability by the end of 2023 on a 2 shift basis . This latter capability can be achieved without further financing , and full utilisation of Knowsley's footprint could eventually accommodate £75m of turnover . For the moment , although ST would not be drawn on average selling prices , the immediate target is to achieve production volume of 100 discs per day .


5) Substantial progress has already been made with the new plant layout , and the arrival of a brand new 20 meter long continuous flow carbonisation furnace at the end of this year will further galvanise operating procedures . ST also plans to add another carbon fibre weaving machine , and another CVI machine ( chemical vapour infiltration ) . We were shown all 10 intricate stages of ST's unique manufacturing processes in some detail , and these are listed here in this link from their website - . I would particularly pick out 4 of these stages where ST adds huge differentiated value , and where the IP is not just in the patent but in the know how behind the process . These are stage 1 , the weaving of the carbon fibre , stage 3 , chemical vapour infiltration , stage 6 , melt infiltration of silicon carbide , and stage 8 , anti-oxidant coating . This latter process is owned by ST , and the IP was bought very reasonably from a private Californian company .


6) When asked about capacity requirements beyond Knowsley , ST said that it would take a minimum of 2 years to plan and execute , and longer if overseas . Given the rates of growth expected in the next few years , it would seem highly likely that preliminary discussions are already taking place . The Chairman inferred that there could be more capacity available in and around Knowsley , if need be . Knowsley should provide enough capacity until 2025 , and , ahead of the start of the big OEM 8 contract this Spring , ST has been actively recruiting , and will continue to recruit through to next year .


In conclusion , an impressive belt and braces capital markets day . ST operates in a duopoly with huge barriers to entry , its marketplace has huge growth potential , its processes are unique , its product is best in class , its machinery is both high tech and bespoke , and the management has huge depth of experience . Whilst there are some short-term risks in the change of manufacturing practices , and in the dominance of the OEM 8 contract , this little company has all the hallmarks of being a Great British gem for many many years to come .

[davealders] 01/5/2022 18:53

I’m sure everyone who attended the meeting came away more confident than ever. The team are doing a superb job of moving the company forward.
You can see just how buoyant the whole team are with what they’re achieving.
It was a first visit for me and it was presented seamlessly.
Exciting times ahead without doubt.
Have a good bank holiday all.
Thanks

[toffeeman] 28/4/2022 09:55

Not saying cycle time is a negative - must make it harder to copy - wonder what Brembo's is?

Phil - thanks for the update - wonder if anyone else attended and has any nuggets.

[albert_einstein] 28/4/2022 09:33

Hi fillspectre,

What did you mean by this bit:

"plans well advanced for ST to achieve £50 million revenue in terms of new big ticket items and where they are going to be located".

[fillspectre] 27/4/2022 21:48

I am surprised no comments yet following the CMD? I will volunteer up some remarks whilst being mindful of the request put to us at the start of the meeting to respect ST's confidentiality particularly in terms of technology.
What I will say is substantial progress has been made with the fitout of the factory to the new pattern. The area originally earmarked for later production cells now contains all the stage 5 processes onwards (see ST's own website for what it divulges on processes). There are plans in place for a step change in the carbonisation process and the plans well advanced for ST to achieve £50 million revenue in terms of new big ticket items and where they are going to be located.
Right now they have got enough work to be getting on with. I saw a lot of enthusiastic engaged people. The ST team is approaching 100 employees. They know there are challenges ahead to get to a fully bedded in plant but they seem up for it. The next couple of years is going to be all about developing the process and developing more resilience. I didn't lose any of my confidence in ST during this visit (however I do have a weakness for ST so beware the bias).
I have always liked the way this Company respects its smaller shareholders - taking time out to host the CMD and to come across as providing realistic, honest answers.
I think it likely - barring unforeseen events - that I will be at the next CMD. Fils.

[trickydicky1] 27/4/2022 16:05

I've heard that burgers can take 2-3 years full cycle, and I recall being served 1000-year old bird's nest soup at a Chinese banquet once .....

[graham1ty] 27/4/2022 15:43

A 737 does not sit in a furnace for a number of days…..I hope

[toffeeman] 27/4/2022 11:51

I am amazed it takes a month - what other products have that production cycle time?

A737 takes about a month!

[cheese666] 27/4/2022 09:16

Interesting to note that production time for a disc has reduced from nine months to one month. Very impressive.

[fillspectre] 26/4/2022 12:47

I will be attending site tomorrow.
Maybe the new non-exec will be there although it isn't the AGM. I am hoping to talk to all the new non-execs. Fils.

[rivaldo] 25/4/2022 18:46

Hardman have released a new 21 page research report on SCE tonight:

[cheese666] 25/4/2022 14:57

Is anyone attending the presentation this week, I'm wondering if we can expect anything new(ish)?

[pinkfoot2] 22/4/2022 08:37

Looks like an appointment with one eye on succession to me-very good one

[longshanks] 22/4/2022 07:37

Harder talk?

[longshanks] 22/4/2022 07:37

It could also be part of an exit plan for DB: he has more or less completed his mission here.With three recently appointed non-execs, we can expect one to be promoted to chairman when he retires gloriously into the sunset in a year or two.

[toffeeman] 22/4/2022 07:34

Why would Twitter want to buy SCE brakes??

[longshanks] 22/4/2022 07:31

Agree. Very interesting appointment.I suspect this is more to do with the plans for expanding capacity into other territories than a move to a US listing. If we are to see double-digit growth over the medium term (10-15 years), we may have three or four manufacturing sites around the world by 2040. Such growth needs experience and this new non-exec appears to have all the necessary credentials.I for one would vote down any move to a US listing as AIM has served us well so far as retail shareholders.

[rivaldo] 22/4/2022 07:26

Impressive new NED appointee announced - interesting comment about the "continued internationalisation of the Company" and his "familiarity with financial management in a large US company" given the guy's experience on the NASDAQ.

Is it possible that a US listing is on the agenda at some point, especially given SCE's contracts with you know who? Just speculating really...

[cheese666] 21/4/2022 13:04

Interesting to note that you are not able to spec CCBD's as an option on any Porsche at the moment. They are only available on models where as standard fitment i.e. Cayenne Turbo S, 992 Turbo S, proper GT range, not GTS. Wonder why?

Porsche have issues with supply on a few of their models. The Taycan is not available to order still I l=believe as part of the wiring harness was produced in Ukraine and has been relocated to Poland.

These incredibly difficult times are nothing to take any pleasure from but it may highlight some weaknesses in their supply network.

[toffeeman] 19/4/2022 19:24

Looks like a couple of bed and ISAs to me - that's the only volume

[pinkfoot2] 19/4/2022 17:51

Big volume today

[jerarnie1] 11/4/2022 12:43

Hardman Talks Video Event | Surface Transforms

Management Presentation and Q&A

We are delighted to announce Surface Transforms will be presenting a live webinar on Hardman Talks at 2:00pm on Thursday 28 April 2022.

The company is holding a Capital Markets Day at its factory in Knowsley on 27 April. This has proved so popular that it has not been possible to accommodate all those who would like to attend. The webinar will provide the opportunity to view the management presentation given at the site visit. This presentation will be followed by a question and answer session with the management team.


This webinar represents a key communication channel for investors to keep up to date with the company's strategy and progress. All investors, whether existing shareholders or not, are invited to watch the presentation and take part in the Q&A session afterwards. There is no charge for attending. Investors are encouraged to submit their questions when registering or during the event. A recording of the webinar will be available on the Hardman & Co website shortly after the event for those cannot attend the live presentation.

[jerarnie1] 08/4/2022 08:37

Surface Transforms launch event at Mosa Frein
Lunch looks good too

[tole] 06/4/2022 18:03

https://masterinvestor.co.uk/equities/small-cap-updates-on-ted-sce-flo-pier-blv-and-char/Surface Transforms (LON:SCE) – beginning to get ready for revving upI was pleased to see that analysts Raymond Greaves and Michael Clifton at finnCap have now upped their price objective for this group's shares.The announcement on Monday obviously pleased the duo, enough to heighten their aim from 69p to 80p a share.Their note is headlined 'FY2021 in line, all eyes now on FY2022 and beyond' and they are so right.This £108m capitalised carbon fibre reinforced brake discs maker has so much potential over the next few years.It is a 'developing situation' and I do see its shares, which closed at 56.5p, as destined for far higher climes – 100p, 150p, 200p within the next three years or so is more than possible.