Surface Transforms Plc
Registered number 03769702
Annual Report and Financial Statements
for the year ended 31 December 2023
Company Profile
Surface Transforms plc (AIM: SCE) pioneers the
development and manufacturing of cutting-edge
carbon ceramic automotive brake discs. As the
sole UK-based producer of carbon ceramic brake
discs and one of only two global leaders in this
field, the company caters to world leading Original
Equipment Manufacturers (OEMs) across the
automotive landscape. Leveraging its proprietary
Carbon Ceramic Technology, Surface Transforms
engineers lightweight brake discs tailored for
high-performance road and track applications,
servicing both traditional combustion engine
and emerging electric vehicle markets.
Distinguished by its innovative approach,
Surface Transforms sets itself apart from
competitors by employing continuous carbon
fibre weaving to construct a robust 3D matrix.
This technique enhances product durability
and heat conductivity, resulting in lower
operating temperatures for brake systems. The
outcome: lighter, longer-lasting components
delivering superior braking performance. Surface
Transforms’ carbon ceramic brake discs offer a
myriad of advantages over traditional iron discs.
These include up to 70% weight savings, extended
product lifespan, consistent performance,
reduced pad dust, and corrosion resistance.
Contents
The Strategic Report
Highlights
Chairman’s Statement
Environmental, Social and Governance (ESG)
Strategic Report
Section 172 Statement
Financial Review
Risks and uncertainties
Governance
Directors Report
Board of Directors
Report of the Audit Committee
Report on Directors Remuneration
Statement of Directors’ Responsibilities
Independent Auditor’s Report
Financial Statements
Statement of Total Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
Shareholder Information
Notice of Annual General Meeting
Company Information and Advisers
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87
Highlights
Financial highlights
• Revenues grew 81% to £7.3m (2022 restated £4.0m), following change to revenue recognition criteria
• Gross margin 57% (2022 Restated: 64%), reduction due to higher temporary outsourcing
• Net research costs of £9.7m (2022: £5.6m)
• £9.2m non-cash impairment of tangible assets (£3.0m) and Intangible assets (£6.2m)
• Loss after taxation, including £9.2m impairment, was £19.6m (2022 Restated: £5.3m)
• Loss per share of 7.92p (2022 Restated: 2.58p)
• Cash used in operating activities £10.3m (2022: £6.5m)
• Cash at 31 December 2023 of £6.1m (2022: £14.9m)
• £10.1m equity placing and open offer to support ongoing working capital needs in the year and £8.8m net
of fees further equity raised post balance sheet
• £13.2m loan secured to fund future capital investment
Customer highlights
• Increased order book by £100m (lifetime value) to £390m at the end of the year
• Further demonstrated the ability to win “carry over” business with existing customer OEM 10
• 5 contracts in multi-year revenue generation phase
• Customers have been critical but supportive in response to our production difficulties
Operational highlights
• Continuing operational problems restricted sales throughout the year albeit quarter- on – quarter growth
in output
• Resultant extensive program of technical, personnel and process changes in the year to reduce
equipment down time and scrap rates
• Capital investments of £9.1m (2022: £8.4m) in the year
• Capacity constraints progressively reduced
• Focus now on improving process capability of all operations
Senior Management Changes
• Post balance sheet, in April 2024, David Bundred announced his intention to retire as Chairman
• Isabelle Maddock joined the board as CFO on 4 September 2023
• Stephen Easton appointed COO on 4 September 2023
• Michael Cunningham resigned from the Board as CFO on 31 May 2023
Other
• Awarded London Stock Exchange “Green Economy Mark” in the year
01
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information Chairman’s Statement
After many years of product development,
leading to our £390m order book, 2023 was
dominated by the challenge of converting
that hard won order book into consistent
volume production. Progress was made,
sales have grown in each quarter, we were
awarded a significant carry over contract in
the year, but the overall operational progress
simply was not good enough.
As a result, the Company had to seek fresh equity
funding both in 2023 and in May 2024, and in parallel
negotiated a £13.2m loan ringfenced for capital
expenditure. The pricing of the funding and resultant
market capitalisation has impacted the annual review
of asset valuation and led to a subsequent, non-cash,
asset impairment. The Board obviously regrets the
circumstances that have led to these distressed
equity raisings and completely understands the
frustration and anger of shareholders over the
subsequent dilution. The Board believes the
combination of these equity fundraisings and local
authority loan is sufficient for working capital and
capital expenditure needs.
Sales Progress
The Company is growing; 81% year on year revenue
growth. The central issue in 2023 was that there
was sufficient demand for twice the level of the H2
output; we had originally forecast that we would
satisfy this demand, but production issues meant we
could not.
Progress on Operations
Surface Transforms is not sales constrained. The
inability to achieve production targets, a recurring
theme of 2023, has therefore been a continuing key
frustration. We are in a learning curve, involving
numerous interrelated but separate technical
problems. That learning curve has proved to be both
steeper and longer than we expected.
There were three broad reasons for these continuing
2023 problems, the delays in installing notional
capacity, the inability to achieve the target output
from this notional capacity and the personnel
learning curve.
• New capacity installation delays. The Company
entered 2023 without adequate capacity to meet
demand and spent the year closing the capacity
gap with £5.8m of fixed asset capital expenditure
in the year.
The background is well known to shareholders.
We ordered our Phase 1 £20m p.a. sales capacity
in 2020, and phase 2 (£50m p.a.) in 2021. For both
phases, we believed that 2 years was sufficient
lead time for both the suppliers and the Company.
Additionally, we assumed, that the projected
demand for 2023 would not exceed £20m.
In the event the plant has taken 3 years, not 2,
to build and commission, and the speed of our
commercial success exceeded our most optimistic
assumptions. The subsequent lack of capacity
impacts the Company in two ways. Firstly, we
had underlying demand for £30m sales in 2023,
that we could not satisfy, requiring careful
customer management. However, the immediate
2023 problem was that without the headroom
of spare capacity, a single point of failure (down
time or scrap) on a single machine became a total
factory bottleneck.
The Phase 2 £50m sales capacity was
progressively installed during the year and into
2024. With one exception, the £50m notional
capacity has been achieved in the first half of 2024,
albeit with work required on process capability to
achieve all the notional capacity. The outstanding
item from this £50m programme is one furnace
that is now expected to be installed at the end of
the year.
However the growth in demand continues and the
installed capacity increase will soon be thereafter
be overtaken by the next step change in demand,
requiring the next part of the phase 2 capacity
increase to £75m. This increase to £75m sales
is planned for commissioning in H2 2025, with
equipment being ordered in 2024. That task is
underway and is in line with plan.
In summary we had planned to take 2 years
to install our £50m capacity but will have
taken over 3 years. The 2024 capacity task is
therefore twofold; completing this phase to
£50m p.a capacity increase whilst, at the same
time, ordering the plant for our £75m p.a sales
02
Surface Transforms PlcThe Strategic Report factory, thus competing Phase 2. We expect
to have balanced short-term demand and
capacity by the end of 2024 and will maintain this
resilience thereafter.
• Process capability, and scrap: The issue of lack
of capacity was compounded by the inability, in
some sub processes to achieve the planned output
from this notional capacity. As the Company scaled
production, technical (and some tooling) issues
emerged with the capital equipment that were not
apparent during the development phase resulting
in excessive down time and scrap. Running
furnaces 24/7 is a different challenge to running
them occasionally producing prototype volumes.
The central problem was excessive variability in
some production processes – known as process
capability. The effect was high levels of rejected
product scrap. Improving process capability is a
well-known technique in volume manufacture,
requiring detailed analysis of input and output
variables. This programme started in the year with,
reduced scrap results already seen in 2024.
• New personnel and procedures: We always
knew that setting up a volume production site
required new skills and operational procedures
not previously needed in a prototype factory.
Not everybody in our original team, at all
levels, was able to transition from prototype to
volume production.
To this end the Company made two significant senior
management appointments in Q3 2023, with Isabelle
Maddock joining us as Chief Financial Officer and
Stephen Easton as Chief Operating Officer. In turn,
both Isabelle and Stephen have subsequently made
further appointments in their own departments.
In particular, over the last few months, operations
have been significantly re-organised, at all levels,
involving both new and existing personnel, with,
for example a fundamentally different approach to
the type of furnace technicians and maintenance
personnel we needed.
We have also instigated a step change in internal
training, ranging from CNC programming for
operators to a Manchester University executive
degree programme for managers. We have always
been proud of being a “learning” company, (27% of
our workforce are graduate level) but nonetheless
have now stepped up a gear in that area.
In parallel, the Company has undertaken a deep
review of the organisational procedures of
operational planning, maintenance, quality, and
supplier development. Unsurprisingly all show the
potential for significant improvement with work
on these projects, under the new leadership, now
well advanced.
Progress with customers
Given the operational background the key
commercial task in 2023 was to ensure that we
kept customers fully informed, including realistic
expectations of what they could expect. The
customer’s response has been what we would have
hoped; they have reiterated that they want to buy
our product and expect us to fix our operational
problems. They have been, rightly, critical but
have also offered technical support. We remain in
continuous dialogue.
Crucially, the customers continue to support us.
Indeed OEM 10 awarded us a carry-over £100m
contract in October 2023. We do not take this
support for granted and whilst the threat to existing
contracts now seems under control, the real proof
of our ongoing relationship will be the continuing
ability to convert the prospective contract pipeline
(“PCP”) into firm orders. Customers will want to
see firm operational progress before making
future commitments.
Looking beyond 2024 we have contracted demand
that enables us to reach up to £75m sales per annum
within the next 4 – 5 years. Our PCP is in addition to
this and is dominated by carryover business from
our existing customers, and the Company’s ambition
remains generating revenues of £100m per annum
within the next 5 years.
Beyond these major customers, we are continuing
to widen our customer base including the very small
niche vehicle builders (we describe them as “Near
OEMs”) as they provide both a very attractive return on
the investment required, 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.
03
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information • Revenue Recognition
We have reassessed our approach to revenue
recognition for certain engineering, testing,
and tooling services provided to OEM
customers, during the development phase of
the contract. This adjustment reflects a change
in management’s interpretation of accounting
standards to only recognise revenue upon
completion of system integration by the OEM or
when control is passed over for the contracted
services, as opposed to in line with work
performed and percentage completion. We have
therefore adjusted our financial statements for
the current and prior year. For 2023 this had the
effect of moving £0.6m of revenue from 2023 to
the future years when the car is in production and
£1.4m over a number of previous years of which the
2022 adjustment was £1.1m.
Chairman’s Statement continued
Accounting policies
Following an audit committee review and application
of accounting policies there were two material items
which have impacted these financial statements:
• Impairment
At the balance sheet date, the Company
recognised £9.2m of asset impairments in respect
to two separate issues:
• Intangible and Right of Use Assets: The
annual re-assessment of the carrying value
of the Company’s assets was this year heavily
influenced by a judgement on risk and the pricing
of the recent fundraise and subsequent market
capitalisation. As a result – and with no cash
implications – the Company has recognised an
impairment charge of £6.2m. It should be noted
that the assets continue to generate revenue and
underpin both our £390m order book and £300m
prospective contract pipeline.
• Furnace: Self-evidently almost all our furnaces
have had commissioning problems. Overall, it is
pleasing to now report that with one exception
the issues have been resolved and we are now
seeing consistent output from the furnace area
of production.
However, there is one furnace that has
simply failed to deliver target output and is,
in our opinion, clearly not meeting the basic
contractual performance. The operational issue
has been resolved through better than planned
output from other existing furnaces; the team
also have a longer-term solution that avoids the
need for this furnace at all.
Nonetheless, the fact remains that the original
furnace is not contributing to current or
expected output. We are in vigorous discussions
with the furnace supplier and do not exclude
formal legal action. In the meantime, we believe
it prudent to take a very cautious view of the
value of this asset. As a result of the furnace’s
current inoperability and the uncertainty
surrounding potential legal recovery, an
impairment of £3.0 million has been recognised
in the Statement of Comprehensive Income for
the year.
04
Surface Transforms PlcThe Strategic Report Environmental, Social and Governance (ESG)
Progress on Environmental,
Social and Governance
Notwithstanding the priority on improving
operations, we are maintaining our ESG activities.
In addition to the importance of ESG, as a corporate
goal, we continue to believe that our ESG work
contributes directly to improving both short term
and long-term profitability.
• Environmental: The Company’s product
contribution to the environment is well known.
Lower weight leads to reduced exhaust emissions
on internal combustion engine vehicles (“ICE”)
and, amongst other benefits, range extension
on electrical vehicles (“EV”). Additionally, and of
increasing importance, for both ICE and EV, is
the impact of carbon ceramic brakes on reducing
brake dust. This reduction in tyre dust and
brake dust is a central feature of the new Euro 7
regulations due for implementation from 2025.
Many of our customers see carbon ceramic discs
as a contributor to them progressively achieving
Euro 7 compliance.
Our ESG task is to ensure that these environmental
benefits are not lost in the manufacturing process,
therefore reducing our carbon footprint remains
a high priority. This programme also translates
directly into improving our profitability, as it is
also a cost reduction. For example, all our new
furnaces have significantly lower power and gas
requirement and the installation of the proposed
combined heat and power plant (“CHP”), will have a
further dramatic impact on gas demand.
The Company was proud to be awarded the London
Stock Exchange “Green Economy Mark” in the year.
• Social: Our prime social task is still that of
providing well paid employment in one of the
most deprived UK local authority areas. To this
end we continue to adopt the policy of meeting
the real living wage as set out by the Living Wage
Foundation for all employees.
We have also established partnerships with two
schools – the local High School and the leading
university technical college (“UTC”) in Liverpool. Our
ambitions are both long term and short term and our
motivations both social and financial. In the short
term we are seeking to improve our recruitment
of the most able technical young people in the
northwest. It is therefore encouraging to report,
in the year, our first recruitment from the UTC into
our graduate apprentice scheme. Our longer-term
objective is with the local High School to increase
the number of pupils, particularly girls, doing STEM
subjects, to at least at GCSE level, if not beyond. Our
programme involves interaction with school staff,
site visits, and even a presentation to their parents!
• Governance: The Board conducted its self-
assessment this year and there was broad
agreement on opportunities. At this stage of the
company’s development, the strong focus on
operational matters needs to continue. However,
the Board also plans to ensure increased time
spent on strategic opportunities, including people
and team development plans. The board appraisal
process will be repeated in 2025.
Post balance sheet date, in April 2024, and after
12 years as Chairman, I announced my intention to
retire, and a search is underway for my successor,
embracing both external and internal candidates.
Additionally in March 2024 Julia Woodhouse
has taken over, from me, the Chair of the
Remuneration Committee.
05
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information reach £150m sales. The Board would not be building
this capacity without anticipating the detail of how
we will fill it.
The central immediate need remains that of
resolving the twin problems of installing the capacity
and then achieving the output from this notional
capacity. Last year we made progress yet there is
still much work to be done, further progress has
been made in 2024 year to date and that continuing
progress will be maintained.
Finally, I want to take the opportunity to thank
employees for their valiant work during a tough year
and of course to thank all shareholders for their
support of our recent equity fundraisings.
David Bundred
Chairman
27 June 2024
Chairman’s Statement continued
Trading Update and Outlook
The Board’s expectation of 2024 and 2025 financial
performance are unchanged from those described
in the recent fund raising, albeit now at the lower end
of that described range. And as we note in our going
concern statement below, at the current time we
need to recognise a material uncertainty in our sales
forecast. As described in the fundraising circular dated
3 May 2024, the first half of 2024 is expected to be one
of consolidation as capacity is installed and the process
capability work maintains momentum, with growth
accelerating in the second half. Almost all the single
point of failure capacity bottlenecks have now been
dealt with.
In relation to which, significant progress was made
in Q1 on reducing scrap and expanding capacity;
this continued into Q2. However, April and May were
impacted by operational supply chains caused by our
working capital constraints in Q2 (now, since early June,
fully resolved by the fund raising). The Company will
be reporting the output for H1 FY24 before the Annual
General Meeting on 23 July.
To reiterate the comments above, the problematic
furnace , the cost of which has been fully impaired has
neither had nor is expected to have an impact on overall
production output and the team has a longer term
solution that avoids the need for this furnace at all.
The Company’s ambition remains generating revenue of
£100m sales per year within the next five years.
Summary
The last twelve months have been, arguably, the
most difficult in the history of the Company. The
operational underperformance was a particular
disappointment leading to the need for an
unplanned cash injection. As previously stated,
the Board obviously regrets the circumstances
that have led to this distressed fund raising and
completely understands the frustration and anger of
shareholders over the subsequent dilution.
However, it is important to remind ourselves that
the Company’s long-term sales and profit potential
is unchanged. Our product works, is wanted by the
marketplace, there is still only one other worldwide
competitor, the market is likely to be demand
constrained for at least the next 5 years, and we are
continuing to install capacity that will, eventually,
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Surface Transforms PlcThe Strategic Report Strategic Report
Strategic Background
In 2022 some 85 million cars were produced
worldwide, each of which has 4 brakes, Historically
the brake system was based on drum brakes
but, since the 1960’s, disc brakes have gradually
superceded drum brakes. The foundation of a disc
brake system is the disc, calliper and the brake pad.
Hitherto the disc has been manufactured using grey
iron but over the past ten years the operational limits
of grey iron have been reached as cars have got
heavier and faster, a trend accelerated by the weight
of batteries in electric vehicles.
Carbon ceramic discs counter the technical limits of
grey iron discs. Carbon ceramic entered the market
at the turn of the century pioneered by Brembo-SGL,
a joint venture between a well-known brake system
company and a carbon specialist. The technical
advantages of carbon ceramic discs are unarguable
– lower weight and faster heat dissipation – but
the growth has been limited by both the need for
extensive testing (many years) of a safety critical
component and the fact that carbon ceramic discs
are significantly more expensive than grey iron discs.
Nonetheless adoption is well underway in the
higher end car market – cars with a retail value over
£60,000. These cars represent less than 1% of the
total automotive market, but even this small niche
represents an immediately accessible market for
carbon ceramic discs valued at more than £2 billion.
Grey iron discs still predominate in this market but
are slowly being replaced by carbon ceramic. We
believe that carbon ceramic discs manufactured by
the monopolist Brembo-SGL, now have around 10%
of the market, all taken from grey iron.
Surface Transforms is the new entrant to this market
effectively breaking the Brembo-SGL monopoly
in replacing grey iron. Our current share of the
immediately accessible £2 billion is tiny but our
contracted order book and prospective pipeline
indicates a 4 to 5 year potential of between 5% and
10% market share. Having reached this short term
milestone, the next step is to achieve duopoly with
SGL Brembo in this high cost cars niche.
The ultimate potential, as technology matures, and
costs drop is to reach out from this niche into the
wider – 99% – of the 85 billion car production market.
The potential is revenue measured in billions.
Environment
(cid:31) Decrease in CO2 emissions
(cid:31) Regulatory pressure to
reduce brake pad dust
pollution
Lifetime & TCO
(cid:31)
Increased service
life and reduced
Total cost of
ownership (TCO)
Market
Drivers
Technology
(cid:31) Braking demands exceeding
(cid:31)
iron disc capabilities
Light weighting - 25kg
weight reduction with
opportunity on the chassis to
increase the saving to 100kg
Competition
(cid:31) Monopolist supplier
(cid:31) Revenues circa £160m/yr
Quality
(cid:31) Enhanced handling,
comfort and performance
Aesthetics
(cid:31) Desirable
(cid:31) No corrosion
(cid:31) Cleaner wheels
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Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information
Strategic Report continued
Price
Long term pricing
agreement which
are competitive
and have good
margin
Capacity
build capacity
to support contracted
customer demand
and manufacturing
resilience
Customer
demand
Product
has superior
technology in
terms of heat
management
and lifetime
Supply Chain
Secure manufacturing
supply chain and
development scale up
supply partnerships
Quality
is certified to
industry standards
Geography
Key markets – UK, Germany and USA
Operational Review and principal activity
Our strategic objective is to be a profitable, series production supplier of carbon ceramic brake discs to the
large volume OEM automotive market. To achieve this, we work directly with OEMs and closely with Tier One
suppliers to meet the customers’ requirements.
In addition, we supply carbon ceramic brake discs to small volume vehicle manufacturers and retrofit high
performance kits for performance cars.
Our strategy is closely aligned to the key market drivers and customer values.
Significant and rapidly growing
market, estimated at more than
£2 billion.
Unique product technology enabling
the design and development of
desirable braking solutions that deliver
to vehicle manufacturer’s needs.
Reduce the environmental impact of
automotive vehicles, lowering CO2
emissions, improving air quality and
meeting environmental regulations.
Breaking a monopolist market,
which is restricting market growth
through a constrained amount of
manufacturing capacity.
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Surface Transforms PlcThe Strategic Report
Market drivers and ST strategy
There are high barriers to entry
Barriers to entry
Bringing a complex product to market
There are many complexities and challenges of bringing a new, complex product to market, particularly one
requiring significant upfront investment and integration with existing systems.
We meet the development of proprietary product technology, to meet customer needs,
for a safety critical component, operating in extreme environments.
Developing new technology requires a substantial initial investment. The process will
involve a lengthy development phase to design and test the foundation disc, followed
by system integration phase to seamlessly incorporate them into the complex vehicle
platform. Building manufacturing capacity will occur concurrently, demanding careful
planning to ensure consistency with the final product design.
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Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information
Strategic Report continued
Lead time with an OEM
Development Phase
OEM System Integration Phase
In Series
OEM Phase
1 Year
2-3 Years
5-7 Years
Contract
Nomination
In Series
Disc Development
In order to obtain the contract
award the disc is developed,
tested and approved by the
OEM. Product development is
completed at our own cost.
Surface Transforms Phase
Car Development
The car development phase
where the customer builds
the car and is assisted with all
aspects of system integration.
The OEM leverages application
engineering for testing, refining
the technology ensuring reliability
and performance functionality
is maintained. Our integration
services encompass engineering,
project management, tooling and
testing services.
5-7 years in full
production with ST
supplying the OEM
for the lifetime of
that model.
Technologically challenging scaling up and capacity expansion
capabilities, requiring use of scarce manufacturing engineering
expertise and supply chain partners with capability for scaling up large
scale manufacturing equipment.
10
Surface Transforms PlcThe Strategic Report Automotive market drivers –
fueling customer demand for
carbon-ceramic brakes:
Customer – Support our customer across key
geographical markets, achieving contract awards to
multiple OEMs with products for multiple models with
multi-year long term supply agreements.
Product – The Company utilises its proprietary next
generation carbon ceramic technology to create
lightweight brake discs for high-performance road
and track applications for both internal combustion
engine and electric vehicles. While competitor
carbon ceramic brake discs use discontinuous
chopped carbon fibre, Surface Transforms
interweaves continuous carbon fibre to form a 3D
matrix, producing a stronger and more durable
product with improved heat conductivity compared
to competitor products. This reduces the brake
system operating temperature, resulting in lighter
and longer life components with superior brake
performance. These benefits are in addition to the
benefits of all carbon ceramic brake discs vs. iron
brake discs: weight savings of up to 70%, extending
product and service life, consistent performance,
environmentally friendly through reducing both
CO2 emissions and brake pad dust, reducing the
total cost of ownership, are corrosion free and are
highly desirable.
Price – with our product and process differentiation,
operating lean manufacturing techniques and
market positioning we are securing long term pricing
agreements with good margins.
Quality – Be a ‘Quality Company’ with a culture
that lives and breathes its world-class business
processes and management systems. We surpass
the automotive quality standards (IATF16949),
and thus, have the confidence that we are able to
pass all customer audits, as evidenced by recent
contract wins.
Manufacturing capacity – Build phase 2 manufacturing
capacity revenue of, £50m p.a. in Q4 2024, with circa
£75m p.a. manufacturing capacity revenue coming
on stream in 2025. We plan to build £150m p.a.
manufacturing capacity revenue in 2027.
Security of supply – Support, manage and
develop our supply chain partners across both the
manufacturing supply chain and scale up equipment
to deliver to our customer contracts.
Environment – Protect the environment by
minimising the environmental impacts arising
from our activities, products and services and
be committed to continuous improvement of our
environmental performance.
Succeeding in these activities generates highly
desirable, environmentally friendly, world leading
quality products, which are price competitive and
profitable to the business.
Furthermore, our products and processes are
protected by a high level of intellectual property
through deep, complex process knowhow and a
product which cannot be reverse engineered.
Delivering our objectives:
The Company continues to invest in its engineering
development to support existing contract awards
and in anticipation of further contract awards
for both ‘carry over’ customer contracts and new
customer contracts in the future.
Series supply for a number of our OEM contracts has
now commenced with demand exceeding supply.
The Company is capacity constrained and continues
to focus on improving the utilisation of its existing
capacity and building additional capacity to support
our customer contracts. The effective utilisation
of our capacity, scale up and additional capacity
expansion objectives are the pathway to profitability
and cash generation.
The Company’s internal activities are therefore
focused on firstly improving our manufacturing
processes with our existing capacity to support
series supply contracts and secondly executing its
manufacturing capacity expansion programs.
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Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information Strategic Report continued
Improving our manufacturing processes
Having completed our £20m p.a. manufacturing
capacity revenue build and experienced capacity
constraints we have worked on improving our
manufacturing resilience and stabilising our
manufacturing processes.
To improve manufacturing resilience, we have
mitigated most of our single points of failure with
the installation of additional machines. Once
capacity headroom is available (from our phase 2
capacity build program) we will establish buffer
stocks to further reduce the risk of disruption to
manufacturing output and flow.
As we have been scaling up, we have observed
instability in some manufacturing processes and
gone through a significant process technology
learning curve. Having grown our work force
rapidly and having unique processes, finding all
the required skilled and experienced resource has
been difficult. We have been able to strengthen our
manufacturing and maintenance engineering teams.
We have also begun a training program to broaden
the base of employees with critical equipment
skills and experience. We have also restructured
the operational leadership team. This has resulted
in improvements in our overall equipment
effectiveness with further steady improvements
expected through 2024.
We are also improving our management and control
systems to further assist in the maintenance and
operational planning.
Building additional capacity
• Enable buffer stock builds
n • Reduce single point of equipment dependency
o
i
t
a
g
i
t
i
M
Embed manufacturing management processes
• Strengthened team leaders and leadership
• Better plant maintenance
•
Improved manufacturing control systems
Building manufacturing capacity
Our Phase 2 capacity build program for £50m
p.a. has progressed but not without delays to
key equipment meaning the completion is now
expected in Q4 of 2024. This £50m capacity build will
provide the capacity needed to support customer
contracts in 2025. Our £75m p.a. manufacturing
capacity revenue investment program is on track
for completion in 2025 and is fully reserved with
current contract awards. It will therefore provide
both further capacity for customer contracts and
capacity resilience/headroom in 2025 and 2026.
Phase 3 – £150m p.a. manufacturing capacity
revenue is required to support contracts in 2027
and our prospective contract pipeline. A lease for
some additional land and buildings adjacent to
our current site has been completed as part of the
Phase 3 programme.
s
k
s
i
R
Manufacturing resilience
• Single points of failure heighten risk
• No buffer stocks
Stability of manufacturing processes
• Maintenance learning curve for complex equipment
• A marked increase in headcount causes disruption in
the short term
12
Surface Transforms PlcThe Strategic Report Manufacturing capacity
Increasing capacity capability and capacity resilience
Capacity Revenue
PHASE 1
£20m/yr
•
•
Installed and in production
Improving effectiveness, with opportunity to deliver more than £20m/yr
Capacity in place – supports ‘in series’ contracts
£14m investment capacity expansion - fully booked to current contract awards
PHASE 2
2024/2025
£50m/yr
£75m/yr
PHASE 3
2026/2027
£150m/yr
•
•
•
•
•
•
£50m/yr capacity support 2024 demand & establish some capacity resilience
Available for production in Q4 2024
£75m/yr required for capacity resilience and growth in 2025
Remaining equipment defined with installation in 2025
Available for production in 2025
Supported by debt finance facility
£30m investment capacity planning – required for 2026/27
•
•
•
Required to support contract awards and PCP
Land and building lease complete to support expansion plans
Equipment and process technology in development
Health and Safety, Quality and ESG
Health and Safety – maintain and improve our health and safety record. We have an excellent
health and safety record which we will continue to focus on.
Quality – maintain product and improve process quality. Improving quality is a never-ending
process, therefore our primarily focus is on continuous improvement and reducing the internal
cost of quality. A key area of focus is the reduction in scrap levels. Reductions in scrap will not
only reduce the cost of poor quality but will also increase our capacity in the short to medium term.
Environmental – Our product is renowned for reducing brake dust, light weighting and
durability. We are targeting the reduction of energy used in the manufacturing process
with the introduction of new furnace technology. We are also very pleased to receive
the LSE green economy mark.
Social – We believe in training and developing our own talent and continue to invest in people. We actively
support employee health and wellbeing with health surveillance and mental health support. We actively engage
in local school partnerships and promote STEM awareness through school events, work experience and
promoting STEM career pathways.
See page 5 for further information on ESG. See the S172 statement on pages 16 and 17 for further information
on employees, health and safety, accreditations, and society.
13
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information
Strategic Report continued
Key performance indicators
The Directors continue to monitor the business internally with several performance indicators: order intake,
sales output, gross margins, profitability, supply chain capacity, health and safety, quality and manufacturing
cost of automotive discs. A set of business milestones has been agreed and are discussed as part of the
monthly board meeting. The board has assessed the results against these KPI’s and believe that progress has
been made against the Company’s targets.
In addition to these financial metrics the board assesses the performance of the Company against 8 business
development KPI’s:
Cumulative Contract Awards
Lifetime Contract Value £’m
12
11
During the year the
Company was awarded
new models with OEM 10
a US car manufacturer.
8
£390
This OEM 10 contract
translated into a
significant increase in
contracted value.
£290
2021
2022
2023
£66
2021
2022
2023
Follow on Contracts
Contracts revenue/yr £’m (average)
5
4
4
2021
2022
2023
With the OEM 10
contract being another
follow on award, the
Company’s believes
that, once awarded
one contract, further
contracts naturally
follow.
£79
£59
£12
2021
2022
2023
The average revenue
from awarded contracts
has grown to £79m/yr
requiring all of our phase
2 capacity build and
creating the need for
further capacity beyond
£75m/yr.
14
Surface Transforms PlcThe Strategic Report
Contracts in Series
Contracted OEMs
5
There are now
5 contracts in series
production driving
revenue growth in 2023
and 2024.
6
6
We continue to have
contracts with 6 OEMs.
5
3
1
2021
2022
2023
2021
2022
2023
Prospective Contract Pipeline £’m
Prospective Contract Pipeline revenue/yr £’m (average)
£415
£393
£300
The Company maintains
a healthy prospective
contract pipeline, mainly
made up from existing
OEM customers and with
follow on models.
£60
£58
£50
2021
2022
2023
2021
2022
2023
The average revenue
from the prospective
contract pipeline is
£50m/yr, which is in
addition to our contract
average revenue of
£79m/yr. All our PCP
is schedule within
the next 4 years.
We are therefore
planning our capacity
build to £150m/yr for
2027/2028.
15
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information
Section 172 statement
The Board is committed to acting in accordance
with Section 172 of the Companies Act and
promoting the long-term success of the Company
for the benefit of all stakeholders. During the year,
we secured £10.1m funding (net of fees) to support
our working capital requirements and fulfill orders,
as well as a further £13.2m to support our investment
programme and be able to deliver future growth.
We actively engage with key stakeholders, including
Customers, Investors and Funders to foster strong
relationships and act fairly in their interests.
Customers
We prioritise building strong partnerships with
our global customer base, recognising their vital
role in our success. Throughout the development
process, we engage in collaborative development
projects with key customers, fostering long-term
relationships and mutual benefit. This strategy
has been instrumental in securing new multi-year
contracts and renewals with global OEMs in the
automotive industry. Notably, in 2023, proactive
communication and regular consultations with
customers helped us navigate the year that gave
us many scale up production challenges, with
equipment failures and process maturity impacting
the manufacturing process, however our customers
worked alongside us. We maintain this commitment
to open communication and problem-solving,
ensuring our valued customers remain satisfied and
our partnerships continue to thrive.
Employees
Our employees are our biggest asset, a continuing
part of our success story and enjoy an open and
inclusive workplace environment where everyone
has an opportunity to contribute, learn and grow.
• During the year the Company performed well
against KPI’s relating to Health and Safety. The
company is accredited with ISO 45001.
• This year, employees actively shaped our
company culture by defining and shaping our
values: Teamwork, Excellence, Ambition,
and Leadership. Management fosters open
communication through regular employee
forums, both formal and informal and with
regular “Townhalls” throughout the year where we
listen and respond to our employees, as well as
16
various routine activities to drive a commitment
to continuous improvement and encourage all
employees to share their ideas for enhancing our
facilities, process and work environment.
01
Teamwork
02
Excellence
03
Ambition
04
Leadership
• In 2023, we received shareholder approval to
launch a company-wide Share Incentive Plan (SIP)
which launched in H1 2024, with a 42% take up.
By sharing ownership through the SIP, we align
employee interests with those of our shareholders,
creating a more unified focus on long-term value
creation for everyone. With over 170 employees
eligible we believe the SIP will foster a stronger
sense of community and shared purpose, leading
to an enhanced work environment for all.
• 27% of our workforce are graduate level or above,
we also have 11 apprenticeships of which in 2023
two apprenticeships completed the year each with
distinction. We have local school partnerships
in place providing STEM awareness sessions
and work experience on site with our qualified
personnel.
Investors and shareholders
• Throughout the year, we actively engaged with our
shareholders through various channels. Numerous
in-person and virtual meetings were held,
providing investors with the opportunity to directly
question board members about our progress and
strategic direction. Additionally, we host webcasts
specifically for retail investors, fostering open
communication. Capital market days further
enhanced shareholder understanding by offering
them the chance to visit our facilities and gain
firsthand insights into our operations.
Surface Transforms PlcThe Strategic Report • In June 2023 the Company was accredited with
the London Stock Exchange’s “Green Economy
Mark”, which recognises companies and funds
that derive more than 50% of their revenues from
products and services that are contributing to the
environmental objectives such as climate change
mitigation and adaptation, waste and pollution
reduction, and the circular economy.
• In December 2023 the Company received a £13.2m
loan from the Liverpool’s city region’s Urban
Development Fund which is part funded by the
European Regional Development Fund (ERDF).
The £13.2m loan from the Mayor and the Liverpool
City Region Combined Authority will enable the
company to invest in new manufacturing facilities
to increase its production capacity and meet the
growing demand for its products. The Company
continues to invest in research and development
within its manufacturing site to enable scale up
and bring carbon ceramic brakes to the market.
The loan is forecast to result in 70 high value jobs being
created over time and, thanks to the introduction of
newer, more efficient furnace technology, lead to an
annual decrease of 1,500 tonnes of CO2 emissions,
from 2026 onwards. The Company also expects the
expansion to create additional opportunities for
current apprentices and graduates.
Government and regulators
The Company is committed to engaging with all
relevant government organisations and ensuring
adherence to all statutory requirements. The
Company has a strong working relationship with the
environmental agency and regularly enters dialogue
as to the fulfilment of our responsibilities. In 2023 the
Company secured re-certification of the ISO 14001
environmental management system. The Company is
also accredited with ISO 45001 2018 certification that
helps to reduce workplace-related risks and provides
a solid framework for the health, safety, and well-
being of our employees.
Partners and suppliers
In 2023 we took significant strides to strengthen
our relationships with partners and suppliers.
Understanding the importance of trust, and security
of supply, we prioritised discussions and commercial
arrangements with our supplier base during our
production challenges and are focused on rebuilding
trust after the cash injection in December. This
commitment to financial responsibility is crucial for
mitigating the inherent risks associated with scaling
up our operations.
The Company values open communication and
collaboration with our partners. We believe in ethical
conduct and hold ourselves and our partners to the
highest standards of responsibility. This collaborative
approach fosters long-term, mutually beneficial
relationships. As a testament to this commitment,
we have established long-term contracts with key
suppliers, providing them with stability and certainty
to support our shared success.
Society
The Company is committed to being a responsible
corporate citizen and making a positive impact on
society. We strive to:
• Reduce CO2 in our manufacturing process and
wherever commercially viable to source materials
and technical support locally in the Knowsley and
Liverpool area.
• Engage with the local schools and actively participate
in work placement programs and STEM initiatives.
• We foster a welcoming and inclusive workplace that
values the unique contributions of all individuals.
• The Company demonstrates our commitment
as a responsible employer, by paying employees,
except apprentices, the Living Wage Foundation’s
recommended rate of £12 per hour, with an average
hourly wage of 18% above the national living wage.
This commitment ensures our team members can
afford a decent standard of living and contributes to
a positive and motivated workforce. The Company
is one of only 17 employers in Liverpool playing their
part in tackling in-work poverty.
The board considers these stakeholders within
its strategic discussions, the performance of the
Company, the workforce and in its governance.
17
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Review
Prior Year Re-statement - Revenue
Recognition for System Integration
Services:
We have reassessed our interpretation of revenue
recognition for multi-year service integration contracts
under IFRS 15. This has resulted in changes to the
criteria upon which revenue is recognised for certain
engineering, testing, and tooling services. Previously,
revenue had been recognised by a careful assessment
of these services over time based on the stage of
completion for each contract, using detailed project
information. This approach which aimed to reflect a
fair representation of revenue earned, aligned with
management’s previous interpretation of IFRS 15.
However, since we have been unable to adequately
evidence the right to payment for incomplete
performance obligations, the criteria for recognising
revenue has been revised to only recognise revenue at
a point in time being either upon completion of system
integration by the OEM or when control is passed over
for the contracted services.
Impact of prior year:
Based on this new interpretation management
determined there to be a material difference in how
the Company has previously recognised revenue. To
comply with IAS 8 the Company is retrospectively
applying this new interpretation and adjusting
prior year audited financial statements. The prior
year revenue related to these services amounts to
a cumulative decrease of £1.4million, with £1.1m
impacting 2022 and £0.3m impacting 2021.
These adjustments have also impacted other financial
statement line items, such as cost of sales, contract
receivables and contract fulfillment assets, as
detailed in Note 30. The Company now expects to
recognise more revenue for these services in future
periods as system integrations are completed by the
OEMs as detailed in Note 3.
18
Revenue
Revenue increased 81% to £7.3m in 2023, driven by
increasing customer in series production contracts.
Revenue expectations fell short notably stemming
from the production challenges which took a
considerable amount of research and development
to overcome, impacting timelines, revenue,
overhead costs and cashflow. In response, the
Company has made a number of significant
technical, personnel and procedural changes
improving machinery output, operational planning,
maintenance, quality, and supplier development to
enable a continuous evolution of the technology for
more effective future scaling.
Gross margin
Gross profit margin decreased to 57% due to product
mix and process outsourcing which will continue in
2024 whilst some of our larger pieces of equipment
are installed and commissioned.
Overheads
Administrative expenses rose 59% to £5.4 million in
2023, compared to £3.4 million in 2022. In addition,
£9.2m of impairments and £0.5m of other non-
recurring costs are discussed below.
Excluding the impairments and other non-recurring
costs, underlying administrative expenses increased
by £2.0 million, primarily driven by the addition of
54 new personnel to support series production. The
Company was staffed to meet the forecast demand
that was not met due to the operational problems.
Accordingly future growth, beyond actual achieved
2023 revenues will not result in further proportional
overhead increases.
Our commitment to research and development
continues to fuel our growth, yet expenditure in the
year was unusually high rising, after capitalisation,
by £4.0 million to £9.7 million (2022: £5.6m) during
the period. The R&D spend was focussed on
process development, reflecting the considerable
technical spend in the year fixing the manufacturing
problems. This spend is reducing as the problems
are being resolved.
Surface Transforms PlcThe Strategic Report Looking ahead, R&D expenditure is anticipated to
stabilise at a more sustainable level following the
significant investments made in 2023. The valuable
insights and improvements gained from this past
year’s R&D efforts will inform future strategies.
Research will continue to focus on:
• Exploring new techniques to enhance efficiency
and product quality
• Optimising production processes
• Identifying ways to utilise better materials, and
lower costs
This focus on continuous improvement through
process and cost optimisation will remain a core
strategy for the future.
Other non-recurring costs
As well as the unusually high incidence of R&D in 2023
management have identified £0.5 million of non-
recurring costs that were incurred in the first half of
the year due to a temporary lapse in our fixed-price
energy contract. The Company has secured fixed
energy prices until March 2025, and the practice
of fixed-term contracts is expected to continue,
management view this as an exceptional item albeit
for reporting purposes it is within overhead.
Impairment
At the balance sheet date the Company recognised
£9.2m of asset impairment.
As reported in the Chairman’s report we identified
that a particular furnace is not performing to
contracted specification. We have resolved the issue
operationally, using other furnaces and external
supply but hold the supplier responsible for the
failure. We are pursuing potential contractual and
legal remedies yet the outcome remains uncertain. As
a result of the furnace’s inoperability, an impairment
of £3.0 million has been recognised in the Statement
of Comprehensive Income for the year. This figure
reduces the value of the asset to the best estimate
of its recoverable amount. We have not recorded an
asset in relation to any potential legal recovery as we
do not currently meet the recognition criteria for a
contingent asset under IAS 37.
IAS 36 requires us to assess the recoverable amount
of our assets annually and whenever there is an
indication of impairment. To apply IAS 36 the company
has necessarily included the recent fundraises as
one market assessment indication along with the risk
inherent in the company. Management’s discounted
cash flow model assumed no expansion capital
expenditure or growth beyond current capacity and
applied a pre-tax discount rate of 14% based on our
determination of our weighted average cost of capital.
This initially demonstrated no impairment as the
discounted cash flows exceeded the carrying value of
assets. In order to address the combined challenges
of cash flow forecasting risk in a scale up company
and the potential gap between implied market value
and carrying value, we have reassessed the carrying
value of our assets. The final impairment test applied
a pre-tax discount rate of 22% to reflect a further risk
premium of 8%. This resulted in a recoverable amount
lower than the carrying value, and an impairment
charge of £6.2 million, with £5.2 million allocated
to capitalised development costs and £1.0 million
allocated to software and right-of-use assets.
It’s important to note that the impaired development
assets continue to generate revenue aligned with
our contracted order book with a lifetime value of
£390 million. As a consequence of this impairment,
future amortisation expense related to these assets
will no longer be amortised on a systematic basis
over each contract’s useful life, thus reducing future
amortisation expense.
A reconciliation of the above impairments is detailed
in Note 4 to the accounting statements.
Exceptional costs
The Company recognised £0.4m of other non-
recurring exceptional costs in the year relating to
restructuring costs.
Net loss
Net loss in the year (after taxation) after impairments
and other non-recurring and exceptional costs was
£19.6m (2022 Restated: £5.3m). Expected tax credit
similar to previous years due to R&D tax regime. The
increase in net loss was driven by significant levels
of spend on research and development, production
challenges and high defects, growth in workforce
in readiness for increased volumes and lower than
expected revenues.
19
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Review continued
Cash Flow
Gross cash at the year end was £6.1m (2022: £14.9m).
Supported by £10.1m fundraising to facilitate working
capital growth, supplier and customer confidence.
Balance Sheet
Capital investment in the period amounted to
£5.8m (2022: £8.4m), with an impairment of £3.0m
recognised against a furnace reflecting its best
estimated recoverable amount. A further £6.2m
impairment charge resulted in a £5.2 million
reduction in the carrying value of capitalised
development costs and a £1.0 million reduction in
software and right-of-use assets. This impairment
reflects the results of an impairment test using a
pre-tax 22% discount rate.
Revenue grew in the period, leading to a £0.5 million
increase in trade and other receivables, a
£0.6 million increase in contract fulfilment assets,
and a £1.1 million rise in inventory. Contract
fulfilment assets are described in note 1 of the
notes to the financial statements.
Equity
During the year, the Company successfully raised
£10.1 million in equity funding (net of fees) to support
working capital requirements and fulfil orders.
Shareholder contributions, including the exercise
of 1,120,000 employee share options, totalled
£10.5 million net of fees for the year. Despite this
after the net loss of £19.6m, net assets decreased
by £9.1m.
Loans
In December 2023, the Company secured a
£13.2 million loan 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 will be 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
over the next 24 months until 31 December 2025.
Similar to a revolving credit facility, the loan liability
will only be recognised once funds are drawn down.
No funds had been drawn down as at 31 December
2023 accordingly no financial asset or liability at
31 December 2023 has been recognised.
20
Going Concern
The continued operation of the company as a going
concern is dependent on our ability to successfully
navigate the upcoming scale-up phase. Two key
areas of material uncertainty have been identified:
1.
2.
Scaling Up Production: Successfully ramping
up production to meet the demands of our
major OEM contracts is essential to our financial
viability. This process presents inherent risks,
and any unforeseen challenges could delay our
ability to deliver on these contracts. Such delays
could necessitate additional cash injections to
bridge any funding gaps.
Maintaining Financial Flexibility: Our current
cash reserves provide us with a runway to
achieve our goals. However, there is a risk that
we may exhaust this cash headroom before
achieving profitability. This scenario could lead
to a breach of our loan covenants, potentially
jeopardising our access to future funding.
The Directors acknowledge the existence of a
material uncertainty related to the Company’s ability
to continue as a going concern. This uncertainty
arises from challenges associated with yield
improvement and necessary investments during the
scale-up phase to meet production targets for the
12 OEM contracts. The duration and extent of these
challenges could significantly impact operational
performance, particularly sales and EBITDA
generation, which are crucial for transitioning the
Company from a loss-making entity to a cash-
generating business.
The Directors have modelled a management
high case, base case and low case scenarios.
Performance since the balance sheet date has
demonstrated strong growth on prior year, yet
short of management expectations for the base
case forecast at the time of writing this report.
Additional disclosures are given in note 1 to the
financial statements to provide an understanding of
the forecast scenarios bank facilities, and cash. The
Company cannot be assured that it will not exhaust
its cash headroom or breach its covenants and that
there is therefore a material uncertainty over the
going concern of the Company. The challenges are
described in detail in this report along with mitigating
actions to address them.
Surface Transforms PlcThe Strategic Report Yield challenges have significantly impacted the
Company’s profitability. Lower yields not only limit
the number of saleable discs, reducing revenue,
but also inflate manufacturing costs due to disc
scrappage before the final stage. This directly
affects our profit margins.
Management has proactively addressed this issue.
Recent months have seen several successful
upgrades to the manufacturing process, leading to
a significant reduction in scrappage rates. We are
committed to long-term efficiency and scalability.
While strategically investing in process optimisation
might temporarily delay reaching desired production
levels and impact cash flow in the short term, it will
ultimately establish a more robust and sustainable
operation, well-positioned to meet future demand.
Our ongoing investment to expand production
capacity carries the potential for delays or
exceeding initial funding estimates. As our
manufacturing strategy relies heavily on capital and
working capital expenditure, any unforeseen issues
with existing equipment during production ramp-
up, challenges with new equipment installation,
or delays in equipment investment or arrival could
affect our ability to meet production targets or limit
our internally generated funding from operations.
To mitigate these risks, we leverage a dedicated
Project Management Office (PMO) with expertise
in executing complex projects on time. The PMO
proactively identifies and manages long lead times
for equipment within the program. Additionally, we
prioritise talent through proactive recruitment,
retention, and development programs, including
graduate and apprenticeship initiatives under the
guidance of seasoned PMO professionals. These
initiatives foster career progression, knowledge
continuity, and succession planning. While we are
confident that our manufacturing plans incorporate
sufficient contingencies to fulfill existing, future, and
prospective contracts, inherent uncertainties could
still impact our ability to achieve these goals within
the anticipated timeframe.
Achieving our strategic goals hinges on effective
planning, robust project management, and access
to timely management information. While we
have growth plans in place, executing them can put
significant strain on our management, operational,
financial, and personnel resources.
Recognising this potential challenge, we are actively
taking steps to mitigate it. We are implementing a
rigorous prioritisation framework within our phased
approach to growth. This ensures we focus on the
most critical initiatives along the critical path, ensuring
efficient resource allocation. Additionally, we have
proactively addressed resource constraints by:
• Scaling our team: We have recruited experienced
engineers and professionals to bolster our
technical expertise. We’re also investing in training
and development programs to upskill existing
operators and create future team leaders.
• Investing in technology: We view software
applications supporting manufacturing,
maintenance, and project management as
a continuous value-add process. Ongoing
investment in these tools streamlines operations
and empowers our team.
Management believes the Company has the
ability to meet future demand due to the ongoing
investments in capacity, people, software and
process optimisation. However, there can be
no guarantee that recent improvements in yield
can be maintained or improved at levels in line
with management expectations, particularly as
production volumes are increasing, and there can
be no guarantee that the increase in production
capacity is effected at the pace planned for. For
these reasons the Company cannot be assured that
it will not exhaust its cash headroom or breach its
covenants, and that there is therefore a material
uncertainty over the going concern of the Company.
Notwithstanding the material uncertainty, after
due consideration the Directors have a reasonable
expectation that the Company 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. The circumstances noted above
indicate the existence of a material uncertainty
which may cast significant doubt over the ability of
the Company to continue as a going concern. The
financial statements do not contain the adjustments
that would arise if the Company were unable to
continue as a going concern.
21
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information Risks and uncertainties
The Company has embedded risk management activities as part of its business planning process with risks
being routinely reviewed throughout the year. The principal risks are execution risks; these may affect the
strategy of the Company or the pace at which we can deliver our aims. The Company has a comprehensive plan
to mitigate these risks and to minimise disruptions and delays.
Execution risk refers to the potential for unexpected challenges and problems arising during the process of
increasing our manufacturing output from a small scale to a large scale operation. These challenges can lead
to delays impacting the customer and creating cost overruns and cash constraints. The principal execution
risks are described in the table below.
We have now established an experienced team, with clear communications between areas to oversee smooth
execution. Organisational structures have been enhanced with a new Plant Manager Leadership role reporting
into Stephen Easton (Chief Operating Officer) enabling management and oversight on a daily basis on the
majority of execution risks.
Risk description
Impact
Mitigation Strategies
Likelihood
(Post-Mitigation)
Safety
Employee health, safety and
wellbeing are parament.
If an incident within our
manufacturing facilities were
to arise this could potentially
cause serious harm, illness
or injuries to employees,
lost production time and
reputational damage.
Moderate
(increased injuries,
workplace fatigue)
• Board-level commitment
to safety culture (e.g.,
training, visible leadership)
Low
• Standards-based approach
to health and safety
(ISO 45001)
Liquidity
Risk of difficulty meeting
short-term obligations due to
limited cash.
Moderate
(supplier issues)
• Prioritise production,
Low
optimise working capital
financing, develop cost
cutting contingency plans
People
Difficulty retaining critical
skills and ensuring a smooth
workforce adaptation to
evolving technologies and
business needs.
High
(Lost “Know-
How”, Production
inefficiencies, quality
control issues, low
morale)
Moderate
• Foster an engaged and
rewarded workforce
• Succession planning for
senior team with specialist
know how and skills
• Onboarding programmes
Comprehensive training
22
Surface Transforms PlcThe Strategic Report Likelihood
(Post-Mitigation)
Low
Risk description
Impact
Mitigation Strategies
Process technology
Inefficiencies,
inconsistencies, or failures
in manufacturing processes
due to newly specified
and evolving technology,
inadequate process control,
or process deviations.
Yield
Production output falls short
of expectations
High
(Production downtime,
increased costs, lost
revenue)
• Dedicated maintenance
team and strategy shift
to “reliability”
• Dedicated heat treatment
team
• 24/7 support system for
critical equipment,
• Duplicate equipment
eliminating single point
of failure,
• Skill workforce with
continuous training and
development programmes
Adoption of maintenance
management system for
efficient upkeep
• Develop headroom capacity
on equipment
High
(Scrap rate, lost sales)
• Have a strong quality team
and assurance process
Low
Product safety
The risk of product recalls,
liability claims, damaging
to business and brand
reputation.
Low
(Reputational damage
from product liability
recall and financial
loss)
• Root cause analysis and
targeted improvements
Cross-functional scrap
reduction teams
• 2 years of pre-launch
Low
testing, alongside stringent
product and quality
specifications.
• We maintain a robust
quality assurance (QA)
and quality control (QC)
program throughout the
manufacturing process and
have an extremely low risk
of a defect reaching the
customer.
• Insurance provides the
ultimate cover to the
Company in the event of
a recall.
23
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information Risks and uncertainties continued
Risk description
Impact
Mitigation Strategies
Likelihood
(Post-Mitigation)
High
(bottlenecks, customer
delays, lost sales,
reputation, revenue)
Capacity constraints and
bottlenecks
Risk of production delays and
lost revenue due to limitations
in manufacturing capacity or
the presence of bottlenecks
that slow down the overall
production process.
• Expand production space
Low
and progress £40m
investment program
for increased capacity.
Research and development
furnace programs to
maximise production
volumes at key stages.
Reduce defects and
scrap rate.
• Develop production
headroom capacity and
build buffer stocks .
Cybersecurity
Risk of disruption, data
breaches, or operational
paralysis due to cyberattacks
on IT systems, production
controls, or confidential
information
Supply chain
Risk of production disruptions
or delays due to issues with
obtaining raw materials,
components, or finished
goods from suppliers
Inability to meet
customer demand
Risk of customer
dissatisfaction if the company
cannot fulfill orders on time or
in the desired quantities
High customer
concentration
Reduced potential for
customer bargaining power
due to a reliance on a limited
number of customers for a
significant portion of revenue.
High
(Financial loss,
reputational damage)
• Dedicated cyber security
Moderate
resources
• Industry-leading security
measures
• Ongoing policy
development
Moderate
(Production delays,
increased costs,
lost revenue)
• Dual sourcing of critical
Low
materials
• Strong supplier
relationships and supply
agreements
High (Lost revenue,
customer trust loss)
• Build capacity and
Moderate
resilience
• Regular customer
engagement & planning
• Contingency plans for
production disruptions
using open communication
with customers
Moderate dependency,
reduced commercial
leverage)
• Prospecting to broaden
customer base over the
mid-term and ensure
continued scalability
Moderate
24
Surface Transforms PlcThe Strategic Report Risk description
Impact
Mitigation Strategies
Energy:
Risk of production
disruptions or increased
costs due to the inability
to secure sufficient energy
supplies locally to meet
the Company’s intensive
production requirements.
High (Capital plans
constrained,
forecasting and
budgeting difficult)
• Progress combined heat
and power (CHP) plant
solutions and other energy-
efficient technologies
• Energy prices are fixed to
March 2025
Likelihood
(Post-Mitigation)
Moderate
By being proactive and taking steps to mitigate these risks we are increasing the likelihood of achieving our
production objectives.
Kevin Johnson
CEO
27 June 2024
25
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information Director’s Report
The Directors present their annual report and the
audited financial statements for the year ended
31 December 2023.
The Directors benefited from qualifying third-party
indemnity provisions in place during the financial
year and at the date of this report.
Directors and Directors’ interests
The Directors who held office during the year and
to the date of signature of the financial statements
were as follows:
(Non Executive Chairman)
(Chief Executive)
(ChiefFinancialOfficerAppointed
4 Sept2023)
(ChiefFinancialOfficerandCompany
SecretaryResigned31 May 2023)
D Bundred*
Dr K Johnson
I Cleminson*
I Maddock
M Cunningham
M Taylor*
J Woodhouse*
* denotes non-executive director. All non-executive
directors are deemed to be independent except
David Bundred (by way of length of service).
The Directors who held office at the end of the period
had the following interests in the ordinary shares
(£0.01 ordinary shares) of the Company:
Interest in
Ordinary shares
at the start of
the period*
Interest in
Ordinary shares
at the end of
the period*
% of Issued
share capital
at the end of
the period
D Bundred
1,397,525
2,052,626
Dr K Johnson
991,308
1,141,308
I Cleminson
164,443
319,654
J Woodhouse
125,000
535,203
M Taylor
430,000
1,240,203
I Maddock
0
113,763
* Number of £0.01 ordinary shares
0.59%
0.33%
0.09%
0.15%
0.35%
0.03%
According to the register of Directors’ interests, no
rights to subscribe for shares in or debentures of
the Company were granted to any of the Directors or
their immediate families, or exercised by them during
the financial period, except as disclosed in the report
on Directors’ remuneration on pages 33 to 35.
Corporate governance
The Company is quoted on the Alternative
Investment Market (AIM) of the London Stock
Exchange, the Company is following the guidelines of
the QCA Corporate Governance Code (as devised by
the QCA in consultation with a number of significant
institutional small company investors) to the extent
appropriate and practical for a Company of its nature
and size. The Company’s governance statement
can be found at https://surfacetransforms.com/
corporate-governance.
The Board has appointed an Audit Committee whose
primary role is to review the Company’s interim and
annual financial statements before submission to
the Board for approval. The Board has also appointed
a Remuneration Committee, which is responsible for
new senior appointments, and reviewing executive
performance and remuneration. This committee
is made up of four non-executive Directors, David
Bundred, Matthew Taylor, Julia Woodhouse and Ian
Cleminson. Post balance sheet date the committee
is now chaired by Julia Woodhouse. The Audit
Committee is made up of the three independent
NEDs and is chaired by Ian Cleminson. Details of the
Remuneration Committee are disclosed in the report
on Directors’ remuneration on page 33.
Going concern
The Directors acknowledge a material uncertainty
regarding the Group’s ability to operate as a going
concern. Further details on the uncertainty are
detailed in the Financial Review and on the relevant
scenarios and bank facilities in note 1 to the
financial statements.
Liquidity risk
With regard to liquidity, the Company’s policy
has throughout the year been to ensure that the
Company is able at all times to meet its financial
liabilities as and when they fall due. Cash flow
forecasting is undertaken on a monthly basis,
approved at board level and managed on a daily basis
by the finance function.
26
Surface Transforms PlcGovernance Exchange rate risk
As the Company evolves, exchange rate fluctuations
could have an adverse effect on the Company’s
profitability or the price competitiveness of its
services. There can be no assurance that the
Company will be able to compensate or hedge
against such adverse effects and therefore negative
exchange rate movements could have an adverse
effect on the Company’s business, prospects, and
financial performance. The Company’s exposure
to exchange risk is partially mitigated through
natural hedging activities. Contracts for all OEMs
with the exception of OEM 5, have been negotiated
in sterling to mitigate any exchange risk. It is the
Company’s policy to negotiate contracts in sterling
where possible.
A more detailed discussion of these risks, including
price risk and credit risk, can be found in Note 22 to
the financial statements.
Principal Activity
The principal activity of the Company is to design,
manufacture and sell carbon ceramic components.
The Company also conducts R&D into better
performing carbon ceramic discs (see Strategic
Report, Section “Bringing a complex product
to market”).
Impairment
The impairment charge described in the Financial
Review reflects an accounting adjustment required
under IFRS . The underlying assets continue to be
integral to fulfilling our customer contracts and
generating future revenue.
Result for the year and proposed
dividend
The loss for the year after taxation amounted to
£19.6m (2022Restated: £5.3m). The Directors do not
recommend the payment of a dividend (2022: £nil).
Post balance sheet event
Subsequent to the balance sheet date, the Company
undertook a successful equity raise. On 2 May 24,
the placing of firm, conditional, and subscription
shares was announced, targeting £6.5 million in
gross proceeds, alongside an open offer. Exercising
the right granted under the open offer terms, the
Company accepted applications for 300,000,000
Open Offer Shares on May 24th, raising an additional
£3.0 million. In total, the Placing, Subscription,
and Open Offer are generated £9.5 million in gross
proceeds, circa £8.8million net.
Disclosure of information to auditor
The Directors confirm that:
• So far as each director is aware, there is no
relevant audit information of which the Company’s
auditor is unaware; and
• The directors have taken all the steps that they
ought to have taken as directors in order to make
themselves aware of any relevant audit information
and to establish that the company’s auditor is
aware of that information.
Strategic report
The information required by schedule 7 of the Large
and Medium-sized Companies and Groups (Accounts
and Reports) Regulations 2008 has been included
in the Strategic Report in accordance with section
414C(11) of the Companies Act 2006 (Strategic Report
and Directors’ Report) Regulations 2013.
Items normally reserved for the directors’ report
relating to risks and uncertainties have been
included within the strategic report along with items
relating to future developments of the Company.
On behalf of the board
D Bundred
Chairman
27 June 2024
Image Business Park
Acornfield Road
Liverpool
L33 7UF
27
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information Board of Directors
Board Skills and Experience
David Bundred
Non Executive Chairman
Appointed August 2011
Dr Kevin Johnson
Chief Executive Officer
Appointed April 2005
David has 30 years’ experience of general
management in the automotive and aerospace
industries with a particular speciality in the
brake systems segment. Before joining Surface
Transforms, he was CEO of TMD Friction GmbH
a €600m sales, private, German headquartered
company that is one of the world’s leading brake pad
system suppliers for the automotive industry. He had
previously been with Lucas Industries for 24 years,
which included, amongst other roles, positions as
COO of Lucas Aerospace, and General Manager of
both the Lucas Brake Controls and Lucas Truck
Brake Divisions.
Within the Brake Controls business he led the
industry introduction of anti-lock brakes, an
experience now mirrored in the introduction of
carbon ceramic disc brakes, both safety critical
products. He is now an active investor with “a
hands on” focus in a small number of high growth
companies. He holds an MBA from Cranfield
University and is both a chartered engineer and
chartered management accountant.
David has a deep understanding of operational and
strategic management within the manufacturing
and automotive sectors along with experience of
managing significant teams.
Kevin has a doctorate in Chemistry from the University
of Liverpool and an MBA from Manchester Business
School. He spent six years in product development
for the chemical industry and has a broad experience
with OEM multinationals in the area of new technology
development. Previously he worked for Avecia,
formerly AstraZeneca. Kevin joined the Company in
2004 and the Board as CEO in 2005. Since then Kevin
has been responsible for leading Surface Transforms
through its development phase to the current position
of winning OEM brake disc contracts.
Kevin is one of the world’s foremost authorities on
carbon ceramics and has significant experience of
strategic management in the automotive sector.
Isabelle Maddock
Chief Financial Officer
Appointed September 2023
Isabelle brings a wealth of experience to the
board, having served for nine years as Chief
Financial Officer at James Cropper Plc, a leading
manufacturer of high-performance industrial
materials. Her proven financial acumen, gained over
30 years in various sectors, strengthens the board’s
strategic decision-making. Isabelle is a Fellow of
the Chartered Institute of Management Accountants
(CIMA), has extensive experience across
manufacturing, software, retail, PFI, and publishing,
with previously held financial positions at Angus Fire
Armour, Ethicon Ltd, Adobe Systems Europe Ltd,
Landmark Ltd, and Haden Building Management Ltd.
For the past two years, Isabelle has also championed
economic growth as Chair of the Confederation of
British Industry’s Economic Growth Board. Isabelle
has transitioned away from this early this year to
dedicate her full focus to the success of Surface
Transforms plc.
Isabelle’s diverse background and strong financial
leadership are valuable assets to the company.
28
Surface Transforms PlcGovernance
Julia Woodhouse
Non Executive Director
Appointed March 2021
Ian Cleminson
Non-Executive Director
Appointed 1 May 2022
Julia spent her executive career in Automotive
with Ford Motor Company where her roles included
Director, Global Power Train Purchasing, based in
USA and Director, Global Chassis Purchasing, based
in Germany. Following her retirement from Ford in
2018, she moved into non-executive roles. Julia is
currently a non-executive director of Outokumpu Oy
a leading global stainless-steel manufacturer based
in Helsinki and is also a member of their external
ESG Council.
Julia brings her extensive international business
experience and listed board background as well as
knowledge of Surface Transforms customer base
and significant launch experience.
Matthew Taylor
Senior Independent Non-Executive
Director
Appointed March 2021
Matthew retired from his role as CEO of Bekaert SA
in 2020 and joined the Board in March 2021. Bekaert
SA, a €5 billion, 30,000 employees global steel cord
business headquartered in Belgium with 45% of its
business in automotive. Prior to this role Matthew
was CEO of Edwards Vacuum, CEO of JC Bamford,
and Global MD of Land Rover following his early
career in sales and marketing roles with Ford after a
short spell in the Royal Navy.
Matthew, a worldwide businessman brings strategic
and leadership skills to Surface Transforms as well
as a thorough understanding of the Company’s
target market.
Ian is currently Executive Vice President and Chief
Financial Officer of Innospec Inc., an international
speciality chemical business employing 2400
personnel, in 22 countries with sales of over
$2.0 billion and quoted on the US NASDAQ exchange
with a market capitalisation of over $3 billion. Ian
joined Innospec in 2002 and has served as CFO since
2006. Prior to joining Innospec, Ian held several
senior financial management and accounting
positions including Financial Controller at a division
of BASF and an accountant in practice at KPMG.
Ian has a Master of Social Science degree from
Birmingham University and is a Fellow of the
Association of Chartered Certified Accountants
During the year the following meetings were held:
Board
Meeting
Audit
committee
Remuneration
committee
No of meetings
Attendance by director:
D Bundred+
K Johnson
I Cleminson*+
I Maddock
M Cunningham
J Woodhouse*+
M Taylor*+
12
11
12
12
4
5
12
12
2
2
2
2
1
1
2
2
2
2
2
2
–
–
2
2
*
Member of the Audit Committee
+ Member of the Remuneration Committee
Non-executive directors are expected to spend
1-2 days per month on Company business and the
Chairman approximately 2 days per week.
29
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information
Report of the Audit Committee
The main objectives and key areas of focus for the
Committee’s work this year were:
1.
2.
3.
4.
5.
To recruit and oversee a smooth transition to a
new Chief Financial Officer.
To oversee a smooth transition to a new Audit
Partner from our audit firm Grant Thornton.
Support Management in driving continuous
improvements in accounting and internal
financial control across the Company.
Work with management and the Board to oversee
the equity and debt raise of the Company which
concluded in December 2023.
Work with the Board to continue to refine the
approach to business risk management, and
further clarify the respective responsibilities
of the Committee and the Board. The key
outcome of these discussions was to confirm
the Board’s overall responsibility for business
risk management and control, with the focus
of the Committee being on matters of financial
reporting, financial risk management and
internal financial control.
Composition
The Audit Committee comprises of three members:
Ian Cleminson (chair)
Matthew Taylor
Julia Woodhouse
All of us are independent Non-Executive Directors.
The Committee therefore complied with the
requirements of the 2016 Code for a smaller
company, this being to have at least two independent
Non-Executive members.
Biographical details and experience of members are
set out on pages 28 to 29. The Board believes that
Committee members have an appropriate range
of financial, operational, commercial management
expertise to allow the Committee to fulfil its duties.
The Board considers that Ian Cleminson has the
relevant and recent financial experience to perform
the role of Committee Chair.
Responsibilities during the year
During the year ended 31 December 2023, the
Committee met two times. The meetings were
attended by the independent Non-Executive
Directors (the members), the Company Secretary
and, by invitation, the Chair of the Board, the Chief
Executive Officer, the Chief Financial Officer and
representatives of the external auditors.
The external auditors have access to all Committee
papers and minutes. The Committee meets privately
at least once a year with representatives from the
external auditors which provides an opportunity for
any matters to be raised in confidence which they
consider should be brought to the attention of the
Committee without the Executive Directors being
present. Full details of Director attendance during
the year are set out in the table of all Committee
meetings on page 29.
In addition to the specific areas of focus described
above, the Committee also carried out the following
work under its Terms of Reference:
• Review, comment on, and recommend to the
Board the Companies interim and full year financial
statements for approval;
• Review and consider the appropriateness of the
outcome of areas where significant judgements
and estimates are required in the preparation of
the financial statements, including those outlined
on pages 58 to 59
• Consider the appropriateness of the going concern
basis used to prepare the financial statements.
• Consider the appropriateness of presenting
alternative performance measures and the clarity
of disclosure relating to these measures;
• Consider and approve proposals from the external
auditor regarding the approach to the audit
strategy for the year ended 31 December 2023,
including the proposed materiality level for the
audit, and review of the findings of the audit;
• Review and update the Committee’s terms of
reference; and
• Review the Committee’s effectiveness.
30
Surface Transforms PlcGovernance Going concern:
The Audit Committee has carefully assessed the
Group’s ability to continue as a going concern. This
assessment considered the current cash position,
available credit facilities, and a range of forecast
scenarios, including the assumptions underlying
those forecasts. The Committee acknowledges
the challenges described in the Financial Review
that introduce uncertainty into the performance
outlook. We believe these assumptions are
reasonable in the circumstances. However, given
the inherent uncertainties surrounding the year’s
performance, the Committee concludes that a
reference to a material uncertainty in the context of
the going concern basis of the financial statements
is appropriate.
Revenue Recognition for System
Integration Services (IFRS 15):
A change in management’s interpretation of IFRS 15
regarding engineering, testing, and tooling services
provided to OEM customers led to adjustments to our
prior year audited financial statements. Previously,
revenue recognition was based over time on stage
completion using detailed project information. In
the current year, we recognised revenue at a point in
time: upon completion of system integration by the
OEM or a change in control.
The Audit Committee reviewed and challenged
management’s judgment and interpretation and are
satisfied with the revised approach. The error in
prior year revenue related to these services amounts
to a cumulative decrease of £1.4million, with £1.1m
impacting 2022 and £0.3m impacting 2021. More
detail can be found in Note 30 to the financial
statements.
Impairments
The Audit Committee reviewed the impairment
tests performed by management and the resulting
charges described in Note 4 to the Financial
statements. We are satisfied that the procedures
were conducted in accordance with IAS 36 and that
the impairment loss is appropriately reflected in the
financial statements.
The Audit Committee challenged management’s
assessment of the impairment on a furnace that will
not be commissioned. We considered the following:
• The justification for a zero recoverable amount
based on the bespoke design and inoperability.
• The company’s pursuit of legal advice and the
potential limitations on recovery allied to the
stringent recognition criteria of IAS 37
• The application of the prudence principle in
recognising the full impairment provision.
We are satisfied with management’s assessment
and believe the impairment loss is appropriately
recognised in the financial statements.
The Committee monitors the integrity of the
Company’s financial information and other formal
documents relating to its financial performance
and makes appropriate recommendations to the
Board before publication. A key factor in the integrity
of financial statements is ensuring that suitable
and compliant accounting policies are adopted
and applied consistently year-on year. In this
respect, the Committee also considers significant
estimates and judgements made by management in
preparing the financial statements. The Committee’s
considerations are supported by input from other
assurance providers, e.g. the external auditors.
Details of total remuneration for the Auditor for the
year, including audit services, audit-related services
and other non-audit services, can be found in Note 4
to the consolidated financial statements.
31
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information Report of the Audit Committee continued
Auditor independence and objectivity
(a)
The independence of the external Auditor is essential
to the provision of an objective opinion on the true
and fair view presented in the financial statements.
Auditor independence and objectivity is safeguarded
by limiting the nature and value of non-audit services
performed by the external Auditor. The Company
has policies of not recruiting senior employees of an
external Auditor who have worked on the audit in the
past two years to senior financial positions within the
Company. The lead engagement partner of the auditor
is rotated at least every five years.
(b)
Non-audit services provided by the
external Auditor
To safeguard the independence and objectivity of
the Auditor, the Committee has approved a policy
on non-audit services provided by the Auditor in line
with professional practice and in accordance with
ethical standards published by the Audit Practices
Board of the Financial Reporting Council. Control
of non-audit services is exercised by ensuring
that all non-audit services, where fees exceed an
agreed limit, are subject to the prior approval of
the Committee, who must be satisfied there is no
conflict of interest. The policy is available on the
Company’s website.
Assessment of effectiveness of external audit
(c)
The Committee has a formal system for evaluating
the performance and independence of the external
Auditor. This system involves active dialogue with the
lead engagement partner and the auditor’s response
to accounting, financial control and audit issues
as these arise. The Committee conducts an annual
review of the structure and approach taken in the
external audit, the level of non-audit fees, and the
effectiveness, independence and objectivity of the
external Auditor.
Having made the requisite enquiries, so far as the
Directors in office at the date of the approval of
this report are aware, there is no relevant audit
information of which the Auditor is unaware and
each Director has taken all reasonable steps to make
themselves aware of any relevant audit information
and to establish that the Auditor is aware of
that information.
Ian Cleminson
Chair to the Audit Committee
27 June 2024
32
Surface Transforms PlcGovernance Report on Directors’ remuneration
The Company is not required to publish a directors
remuneration report, however for transparency
chooses to show directors remuneration without
adhering to the Companies act format.
During the year the Remuneration Committee
comprised of David Bundred, Julia Woodhouse,
Matthew Taylor and Ian Cleminson. In discussions
with advisors and following latest QCA guidance.
Post balance sheet date, Julia Woodhouse has
taken over from David Bundred as Chair of the
Remuneration Committee.
The Remuneration Committee plays a crucial
role in ensuring good governance by overseeing
two key areas: board composition and executive
compensation.
• The committee reviews and determines
appointments to the Board, ensuring the Board has
the necessary skills and experience to guide the
company effectively.
• The committee oversees the company’s policy
on executive remuneration, including granting
options under the Share Option Scheme. This
ensures executive pay is fair and competitive,
reflecting individual contributions and aligning
with the company’s long-term goals.
• The Committee also monitors performance and
succession planning at both Board level and the
Senior Leadership Team.
Fees for non-executive Directors
The fees for non-executive Directors are determined
by the Board, after taking advice from its brokers
and advisors. The non-executive Directors are
not involved in the decisions about their own
remuneration.
Directors’ remuneration
Set out below is a summary of the fees and emoluments received by all Directors for the year or, where
applicable, period of office:
Executive Directors
Dr K Johnson
I Maddock
M Cunningham
Non-Executive Directors
DG Bundred
RD Gledhill
J Woodhouse
M Taylor
I Cleminson
31 December
31 December
Salary
£
Bonus
£
Fees
£
2023
£
Salary
£
Bonus
£
Fees
£
2022
£
284,500
50,000
– 334,500 256,960
34,116
– 291,076
69,002
–
58,455
25,000
–
–
69,002
83,455 127,000
15,408
–
–
142,408
411,957
75,000
– 486,957 383,960
49,524
– 433,484
65,000
–
35,000
35,000
35,000
170,000
–
–
–
–
–
–
18,000
83,000
20,000
–
–
–
–
–
23,333
35,000
35,000
35,000
35,000
35,000
23,333
18,000 188,000 136,666
–
–
–
–
–
–
60,000
80,000
–
–
–
–
23,333
35,000
35,000
23,333
60,000 196,666
33
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information Report on Directors’ remuneration continued
The consultancy agreement with DG Bundred terminated in the year and remuneration set at an annual salary
of £80,000. With the exception of Dr Kevin Johnson, M Cunningham and I Maddock, none of the Directors
received pension contributions in respect of their office. In addition to the emoluments received, as stated
above, Dr Kevin Johnson received £20,847 (2022: £17,612) in respect of pension contribution, M Cunningham
received £5,582 (2022: £7,875) and I Maddock received £ 4,611 (2022: £nil) in respect of pension contribution.
Directors’ interests
Information regarding directors' shareholdings in the Company for 2023 is detailed in the sections below on
Share Saving Schemes and Long-Term Incentive Plans. The Company has maintained Directors' and Officers'
liability insurance throughout the period. We are pleased to report that no contracts requiring disclosure due
to a director's material interest were entered into during the reporting period. For further details on related
party transactions, please refer to Note 20.
Share Saving Schemes and Long-Term Incentive Plans
The Directors believe that the Company benefits from all employees participating in the share ownership of the
company’s shares through share option plans. By sharing ownership we align employee interests with those of
our shareholders, creating a more unified focus on long-term value creation for everyone. As the Company has
grown, we are no longer eligible to participate in the highly tax efficient HMRC approved Enterprise Management
Incentive Scheme (EMI) and therefore established a Long Term Incentive Plan, approved at the 2023 AGM.
All options are granted at the discretion of the Board. Existing awards to directors under the EMI scheme,
the number of options granted, date of grant, exercise price and exercise periods under the scheme are set
out below.
Director
D Bundred
D Bundred
Date of Grant
Holding on
1 January
2023
Disposals
02/10/2016
250,000
04/01/2018
450,000
Dr K Johnson
04/07/2018
1,590,000
Dr K Johnson
05/12/2018
1,910,000
Holding on
31 December
2023
250,000
450,000
1,590,000
1,910,000
Exercise
Price
Exercise
Period
£0.16
02/10/18-02/10/25
£0.15
04/01/18-04/01/28
£0.16
19/09/18-19/09/28
£0.13
05/12/18-05/12/28
–
–
–
–
M Cunningham*
04/01/2018
990,000
(990,000)
–
£0.15
04/01/18-04/01/28
M Cunningham*
11/11/2021
173,700
–
173,700
£0.57
11/11/21-11/11/31
* M Cunningham resigned from the board in May 2023
5,363,700
4,373,700
34
Surface Transforms PlcGovernance In 2023, after consulting in detail with shareholders and advisors, the Company received shareholder approval
to replace the long standing EMI scheme for Executive share options with a Long-Term Incentive Plan (LTIP).
On 16 January 2024 Surface Transforms granted,
in total, 7.3m share options to three PDMRs and
five non-PDMR senior managers pursuant to its
long term incentive plan (“LTIP”). Kevin Johnson
(CEO) has been awarded 2.50m Options, Isabelle
Maddock (CFO) 1.37m, Stephen Easton (COO) 1.20m,
and the five other senior managers a total of 2.21m.
The exercise price of the Options was 10.98p. The
Options represents 2.1% of the total issued share
capital of the Company. The Options vest at the
third anniversary of grant if the following vesting
requirements are met:
• EBITDA per share between 3.34 pence (10.5%
of the award) and 4.00 pence per share (30% of
the award).
• This is based on achieving between £12.5m EBITDA
and £15m EBITDA in the year to 31 December 2026
• Installation of realisable £75m sales capacity
(30% of the award)
• Share price above 60p on a VWAP basis for the
20 days prior to the vesting date (20% of the award)
• A commercially confidential strategic milestone
providing additional technical excellence, aimed at
maintaining the Company’s technical leadership in
the marketplace (20% of the award)
The vesting criteria are independent of each other,
albeit clearly linked if the separate criteria are to
be achieved.
After exercise, the participants in the LTIP will
be required to maintain a level of shareholding
proportional to their salary.
In addition to the LTIP for the Executive Directors
and senior leadership team and after extensive
consultation with advisors and shareholders in
reviewing share schemes, the Company received
shareholder approval in 2023 to also launch a
company-wide Share Incentive Plan which now
launches in H1 2024. This scheme is a mix of
individual employee savings and share awards in
proportion to the employee savings. While HMRC
allows non-executive directors to participate, the
QCA guidelines do not approve of NEDs holding
share options, and the Company will follow
these guidelines.
The market price of the shares as at 31 December
2023 was 11.13 pence and during the period varied
from 10.25 pence to 40.50 pence.
On behalf of the board
D Bundred
Chairman
27 June 2024
35
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information Statement of Director’s responsibilities
The directors confirm that:
• so far as each director is aware, there is no relevant
audit information of which the company’s auditor is
unaware; and
• the directors have taken all the steps that they
ought to have taken as directors in order to make
themselves aware of any relevant audit information
and to establish that the company’s auditor is
aware of that information.
The directors are responsible for the maintenance
and integrity of the corporate and financial
information included on the Company’s website.
Legislation in the United Kingdom governing
the preparation and dissemination of financial
statements may differ from legislation in
other jurisdictions.
D Bundred
Chairman
27 June 2024
The directors are responsible for preparing
the Annual report and the financial statements
in accordance with applicable law, including
international accounting standards in conformity
with the requirements of the Companies Act 2006/
UK- adopted international accounting standards.
Company law requires the directors to prepare
financial statements for each financial year. Under
that law, the directors have elected to prepare the
financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards and
applicable law). Under company law, the directors
must not approve the financial statements unless
they are satisfied that they give a true and fair view of
the state of affairs of the company and of the profit
or loss of the company for that period.
In preparing these financial statements, the
directors are required to:
• select suitable accounting policies and then apply
them consistently;
• make judgements and accounting estimates that
are reasonable and prudent;
• state whether applicable UK adopted international
accounting standards have been followed, subject
to any material departures disclosed and explained
in the financial statements; and
• prepare the financial statements on the going
concern basis unless it is inappropriate to presume
that the company will continue in business.
The directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the company’s transactions and disclose
with reasonable accuracy at any time the financial
position of the company and enable them to ensure
that the financial statements comply with the
Companies Act 2006. They are also responsible for
safeguarding the assets of the company and hence
for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
36
Surface Transforms PlcGovernance Independent auditor’s report
to the members of Surface Transforms Plc
Opinion
Our opinion on the company financial statements is unmodified
We have audited the company financial statements of Surface Transforms Plc for the year ended 31
December 2023, which comprise the Statement of Total Comprehensive Income, the Statement of Financial
Position, the Statement of Changes in Equity, the Statement of Cash Flows and notes to the financial
statements, including a summary of significant accounting policies. The financial reporting framework that
has been applied in their preparation is applicable law and UK-adopted international accounting standards.
In our opinion, the company financial statements:
•
•
•
give a true and fair view of the state of the company’s affairs as at 31 December 2023 and of its loss for
the year then ended;
have been properly prepared in accordance with UK adopted international accounting standards; and
have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable
law. Our responsibilities under those standards are further described in the ‘Auditor’s responsibilities for
the audit of the company financial statements’ section of our report. We are independent of the company in
accordance with the ethical requirements that are relevant to our audit of the company financial statements in
the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Material uncertainty related to going concern
We draw attention to the going concern section within Note 1 to the financial statements, which indicates
that there is uncertainty in the ability to navigate the scale-up phase, due to two key areas, that may cast
significant doubt on the Company’s ability to continue as a going concern. There is a risk that the Company
cannot successfully ramp up production to meet the demands of their customers, and this scenario may
necessitate additional cash injections. Additionally, there is a risk that the Company many not be able to
maintain financial flexibility which may exhaust cash headroom or breach loan covenants in a reasonably
plausible downside scenario.
As stated in note 1, these events or conditions indicate that a material uncertainty exists that may cast
significant doubt on the company’s ability to continue as a going concern. Our opinion is not modified in respect
of this matter.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of
accounting in the preparation of the financial statements is appropriate.
37
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information Independent auditor’s report continued
Our evaluation of management’s assessment of the entity’s ability to continue as a
going concern
Our evaluation of the directors’ assessment of the Company’s ability to continue to adopt the going concern
basis of accounting included:
•
•
•
•
•
•
•
•
•
•
obtaining an understanding of relevant controls relating to the assessment of the going concern model;
obtaining and reviewing management’s assessment of going concern, including forecasts covering the
period up to and including June 2025, being at least 12 months from the date of approval of the financial
statements and tested the mathematical accuracy of the forecasts, as approved by the Board;
assessing the reasonableness of the inputs and assumptions used in the model;
testing the accuracy of management’s historical forecasting through a comparison of budget to actual
data;
corroborating the existence of the Company’s loan facilities and relevant covenant requirements to loan
agreements for the period covered by management’s forecasts;
assessing scenario sensitivities and reverse stress tests performed by management, and determined if
they are plausible;
performing our own scenario sensitivities over and above the sensitivities of management and considered
the available headroom and compliance with covenants;
testing the adequacy of the supporting evidence for cash flow forecasts by agreeing to relevant supporting
documentation and actual performance, and considered the headroom available to the Company;
assessing the appropriateness of assumptions regarding mitigating actions to reduce costs or manage
cashflows in downside scenarios;
engaging an internal going concern specialist to assist in forming our opinion and conclusion in relation to
going concern; and
•
assessing the adequacy of related disclosures within the annual report.
Based on the work we have performed, we have identified two material uncertainties relating to events or
conditions that, individually or collectively, may cast significant doubt on the company’s ability to continue
as a going concern for a period of at least twelve months from when the financial statements are authorised
for issue.
38
Surface Transforms PlcGovernance Our approach to the audit
Overview of our audit approach
Overall materiality: £567k, which represents 5% of the company’s loss
before tax excluding impairment charges.
Key audit matters were identified as:
•
Revenue recognition on over-time contracts subject to the conditions of
IFRS 15 (same as previous year);
• Going concern (same as previous year); and
Materiality
Key audit
ma(cid:31)ers
•
Carrying value of intangible and tangible assets (new in current year).
Our auditor’s report for the year ended 31 December 2022 included no
key audit matters that have not been reported as key audit matters in our
current year’s report.
We have performed a full-scope audit of the financial statements of the
Company.
Scoping
Key audit matters
Key audit matters are those matters that, in our professional judgement,
were of most significance in our audit of the company financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to fraud)
that we identified. These matters included those that had the greatest
effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters
were addressed in the context of our audit of the company financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Descrip(cid:31)on
Audit
reponse
KAM
Disclosures
Key
observa(cid:31)ons
39
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information
Independent auditor’s report continued
In the graph below, we have presented the key audit matters and significant risks relevant to the audit. This is
not a complete list of all risks identified by our audit.
High
Poten(cid:29)al
financial
statement
impact
Revenue recogni(cid:31)on
on over-(cid:31)me contracts
subject to the condi(cid:31)ons
of IFRS 15
Point in (cid:31)me
revenue
Going concern
Carrying value of
intangible and tangible
assets
Management
override of
controls
Low
Low
Key audit ma(cid:31)er
Significant risk
Extent
of
management
judgement
High
40
Surface Transforms PlcGovernance
Key Audit Matter
How our scope addressed the matter
Revenue recognised on over-time contracts subject to
the conditions of IFRS 15
We identified revenue recognised on over-time
contracts subject to the conditions of International
Financial Reporting Standard (IFRS) 15 ‘Revenue
from Contracts with Customers’ as one of the most
significant assessed risks of material misstatement
due to fraud and error.
There is a risk that revenue has been misstated
through fraud or error, due to the complexity of the
revenue contracts and the recognition criteria of IFRS
15’s 5-step approach.
We also consider there to be significant judgement
in the assessment of performance obligations per
the contract in accordance with IFRS 15, which
determines revenue recognition over multi-year
contracts.
Relevant disclosures in the Annual Report
•
Financial statements: Note 1 Accounting policies;
Basis of preparation and Note 30 Prior Year
Restatement
•
Audit committee report: Revenue Recognition for
System Integration Services (IFRS 15):
In responding to the key audit matter, we performed
the following audit procedures:
•
•
•
•
obtained an understanding of and evaluated the
design and implementation of relevant controls
over the revenue cycle;
assessed the revenue recognition accounting
policy for compliance with accounting standards,
including appropriateness and disclosure within
the financial statements;
obtained and inspected contract documents and
challenged the identification of performance
obligations, contract clauses and assessed
whether the method of revenue recognition is in
accordance with IFRS 15 ‘Revenue from contracts
with customers’;
made inquiries of project managers to obtain
an understanding of the performance of the
contract throughout the period and at period
end;
•
assessed the adequacy of disclosures
Key observations
In performing our audit procedures, we noted the
Company's accounting for long-term contracts
did not meet the requirements of the accounting
standard IFRS 15. These findings resulted in material
adjustments in the current and prior period. The
prior period restatement in revenue of £1,076,590
is outlined in Note 30 of the financial statements.
Following these adjustments, there was no revenue
recognised over time in either the current year, prior
year or earlier years.
41
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information Independent auditor’s report continued
Key Audit Matter
How our scope addressed the matter
Carrying value of intangible and tangible assets
We identified the carrying value of intangible and
tangible assets as one of the most significant
assessed risks of material misstatement due to
error following the continued operational challenges
experienced by the Company.
Under International Accounting Standard (IAS) 36
‘Impairment of Assets’, management are required to
perform an annual assessment of whether there is
any indication that an asset may be impaired or for
assets that are not amortised, an annual impairment
review.
Indicators were deemed to exist therefore
management prepared an impairment model to
assess the value in use. Calculating value in use,
through forecasting cash flows for the CGU, and
the determination of CGUs, appropriate discount
rates and other assumptions to be applied is highly
judgemental and subject to management bias or error.
The selection of certain inputs into the cash flow
forecasts can also significantly impact the results of
the impairment assessment.
In responding to the key audit matter, we performed
the following audit procedures:
•
•
•
•
•
•
•
obtained an understanding of and evaluated the
design and implementation of relevant controls
relating to the impairment model;
obtained management’s Board-approved
assessment over carrying value and value in
use, understood and challenged sensitivities
performed;
assessed the mathematical accuracy of the
impairment model and methodology applied
by management for consistency with the
requirements of IAS 36, including the associated
sensitivities performed;
tested the accuracy of management’s
forecasting through a comparison of current
period budget to actual data;
assessed the appropriateness of management’s
assumptions and sensitivities, and performed
our own sensitivities, relating to the calculations
of the value in use of CGUs and estimated future
cash flows, including growth rates and discount
rates used to assess the level of headroom;
used our internal valuation specialists to
inform our challenge of management, that the
assumptions used within the calculation of
weighted average cost of capital and specific
cash flow risk premiums were reasonable; and
assessed the accuracy and sufficiency of
financial statements disclosures.
Relevant disclosures in the Annual Report
•
Financial statements: Note 1 Accounting policies;
Impairment of Assets, Note 11 Property, plant and
equipment and Note 12 Intangibles
•
Audit committee report: Impairment
Our results
Our audit testing and challenge of management
resulted in revision of their forecasts and discount
rate utilised and the following impairment charges
recognised:
•
•
Intangible assets £5,820k
Tangible assets £3,795k
Based on our audit work, we are satisfied that
the assumptions used in management’s revised
impairment model were appropriate and we did not
identify any remaining material misstatements in
the carrying value of intangible and tangible assets.
We consider the disclosures with respect to the
carrying value of intangible and tangible assets to be
in accordance with IAS 36.
42
Surface Transforms PlcGovernance Our application of materiality
We apply the concept of materiality both in planning and performing the audit, and in evaluating the effect of
identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements
and in forming the opinion in the auditor’s report.
Materiality was determined as follows:
Materiality measure
Company
Materiality for financial
statements as a whole
We define materiality as the magnitude of misstatement in the financial
statements that, individually or in the aggregate, could reasonably be expected to
influence the economic decisions of the users of these financial statements. We
use materiality in determining the nature, timing and extent of our audit work.
Materiality threshold
£567k (2022: £308,800), which represents 5% of loss before tax excluding
impairment charges (2022: 5% of loss before tax).
Significant judgements
made by auditor in
determining materiality
In determining materiality, we made the following significant judgements:
•
•
•
We selected loss before tax as the benchmark as the Company operates in
an industry in which the customer base is stable and the cost of servicing
the customers does not vary significantly. Loss before tax is also a key
performance measure for the Company and is therefore of most interest to
the stakeholders;
We excluded impairment charges on the basis that they are material and
non-recurring and as such do not reflect the underlying performance of the
Company; and
A percentage of 5% was chosen given ongoing risk due to wider macro-
economic impacts.
Materiality for the current year is higher than the level that we determined for
the year ended 31 December 2022 to reflect the higher loss in the current year
compared to the prior year. Despite making a higher loss then in the prior year,
the company has benefited from an increase in revenue and growth of their
customer base. This materiality is considered a suitable threshold in capturing
any significant balances for audit purposes.
Performance materiality
used to drive the extent of
our testing
We set performance materiality at an amount less than materiality for the
financial statements as a whole to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements
exceeds materiality for the financial statements as a whole.
Performance materiality
threshold
£425k (2022: £231,600), which is 75% (2022: 75%) of financial statement
materiality.
43
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information Independent auditor’s report continued
Materiality measure
Company
Significant judgements
made by auditor in
determining performance
materiality
Specific materiality
Specific materiality
Communication of
misstatements to the
audit committee
In determining performance materiality, we made the following significant
judgements:
•
•
•
•
The Company has a strong governance structure in place, with separate
governance and audit committees. Furthermore, there is a strong culture of
compliance and doing the right thing;
The senior finance team are experienced in both their industry and within the
wider finance and accounting industry and have the relevant qualifications to
perform their roles effectively;
The number and quantum of unadjusted misstatements identified in the prior
year were not considered to be significant; and
The nature and impact of control deficiencies identified in the prior year.
We determine specific materiality for one or more particular classes of
transactions, account balances or disclosures for which misstatements of
lesser amounts than materiality for the financial statements as a whole could
reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements.
We determined a lower level of specific materiality for the following areas:
• Directors’ remuneration; and
• Related party transactions.
We determine a threshold for reporting unadjusted differences to the Audit
Committee.
Threshold for
communication
£28k (2022: £15k), which represents 5% of materiality, and misstatements below
that threshold that, in our view, warrant reporting on qualitative grounds.
The graph below illustrates how performance materiality interacts with our overall materiality and the
threshold for communication to the Audit Committee.
Loss before tax excluding impairment charges, £11,514k
FSM £567k, 5%
FSM: Financial statement materiality, PM: Performance materiality, TfC: Threshold for communication to the
Audit Committee
FSM £567k, 5% PM £425k, 75% TfC £28k, 5%
44
Surface Transforms PlcGovernance
An overview of the scope of our audit
We performed a risk-based audit that requires an understanding of the company’s business and in particular
matters related to:
Understanding the company, its environment, including controls
• we obtained an understanding of the Company, its environment and the controls in place; and
•
we evaluated the design and implementation of controls relevant to the audit and assessed the risk of
material misstatement.
Work to be performed on financial information of the Company (including how it addressed the key audit matters)
•
a full-scope audit of the financial statements of the Company;
•
•
•
•
an evaluation of significant management estimates and judgements, including those estimates and
judgements made in respect of over-time revenue contracts;
an assessment of material accounting policies for compliance with the financial reporting framework;
undertaking substantive audit procedures on over-time revenues, including evaluation of management’s
assessment of revenue recognition and whether it was in accordance with IFRS 15, which addressed the
key audit matter ‘Revenue recognition on over-time revenue contracts subject to the requirements of
IFRS 15’;
undertaking substantive audit procedures over the carrying value of intangible and tangible assets,
subject to the requirements if IAS 36, including review and challenge of management’s value in use
calculation which addressed the key audit matter ‘Carrying value of intangible and tangible assets; and an
assessment of the ability of the Company to continue as a going concern through reference to cashflow
forecasts, sensitivity analysis and reverse stress testing, which addressed the key audit matter ‘Going
concern’.
Performance of our audit
•
In order to gain sufficient appropriate audit evidence to address the risks described above, an audit of
financial information of the Company was carried out, this included a mix of onsite visits and remote
working.
Changes in approach from previous period
•
There have been no changes in approach from the prior year.
Other information
The other information comprises the information included in the annual report, other than the financial
statements and our auditor’s report thereon. The directors are responsible for the other information contained
within the annual report. Our opinion on the financial statements does not cover the other information and,
except to the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information
is materially inconsistent with the company financial statements or our knowledge obtained in the audit
or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether there is a material misstatement of the
45
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information Governance
Independent auditor’s report continued
company financial statements themselves. If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of the audit:
•
•
the information given in the strategic report and the directors’ report for the financial year for which the
company financial statements are prepared is consistent with the company financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal
requirements.
Matter on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the company and its environment obtained in the course of
the audit, we have not identified material misstatements in the strategic report or the directors’ report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006
requires us to report to you if, in our opinion:
•
•
•
adequate accounting records have not been kept by the company, or returns adequate for our audit have
not been received from branches not visited by us; or
the company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 36, the directors are
responsible for the preparation of the company financial statements and for being satisfied that they give
a true and fair view, and for such internal control as the directors determine is necessary to enable the
preparation of company financial statements that are free from material misstatement, whether due to fraud
or error.
In preparing the company financial statements, the directors are responsible for assessing the company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the company financial statements
Our objectives are to obtain reasonable assurance about whether the company financial statements as a
whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
46
Surface Transforms Plc Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these
company financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. The extent to which
our procedures are capable of detecting irregularities, including fraud, is detailed below:
•
•
We obtained an understanding of the legal and regulatory frameworks applicable to the Company and the
industry in which they operate. We determined that the most significant laws and regulations as those that
relate to the financial reporting framework, being the Companies Act 2006 and UK-adopted international
accounting standards, together with tax legislation and health and safety law;
We obtained an understanding of how the Company was complying with those legal and regulatory
frameworks by making inquiries of management, the finance team, those charged with governance
and the Audit Committee whether they were aware of any instances of non-compliance with laws and
regulations or whether they had any knowledge of actual, suspected or alleged fraud. We corroborated our
inquiries to relevant supporting documents and through our review of Board minutes and papers provided
to the Audit Committee;
•
We assessed the susceptibility of the Company’s financial statements to material misstatement, including
how fraud might occur. Audit procedures performed by the engagement team included:
-
-
-
-
-
-
-
evaluation of the design and implementation of controls that management has put in place to prevent
and detect fraud;
obtaining an understanding of how those charged with governance considered and addressed the
potential for override of controls or other inappropriate influence over the financial reporting process;
identifying and testing journal entries, in particular any journals with unusual characteristics, and
increasing our testing in areas of higher risk as identified during our audit;
designing audit procedures to incorporate unpredictability around the nature, timing or extent of our
testing;
challenging assumptions and judgements made by management in its significant accounting
estimates;
identifying and testing related party transactions; and
assessing the extent of compliance with the relevant laws and regulations as part of our procedures on
the related financial statement item.
•
•
These audit procedures were designed to provide reasonable assurance that the financial statements
were free from fraud or error. The risk of not detecting a material misstatement due to fraud is higher
than the risk of not detecting one resulting from error and detecting irregularities that result from
fraud is inherently more difficult than detecting those that result from error, as fraud may involve
collusion, deliberate concealment, forgery or intentional misrepresentations. Also, the further removed
non-compliance with laws and regulations is from events and transactions reflected in the financial
statements, the less likely we would become aware of it;
In assessing the potential risks of material misstatement, we obtained an understanding of the Company’s
operations, including the nature of its revenue sources, products and services and of its objectives and
strategies to understand the classes of transactions, account balances, expected financial statement
disclosures and business risks that may result in risks of material misstatement;
47
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information
Independent auditor’s report continued
•
The engagement partner’s assessment of the appropriateness of the collective competence and
capabilities of the engagement team including consideration of the engagement team’s:
-
understanding of, and practical experience with audit engagements of a similar size and complexity
through appropriate training and participation; and
-
understanding of the legal and regulatory requirements specific to the Company.
•
We communicated relevant laws and regulations and potential fraud risks to all engagement team
members, including specialists, and remained alert to any indications of fraud or non-compliance with
laws and regulations throughout the audit.
A further description of our responsibilities for the audit of the company financial statements is located on the
Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part
of our auditor’s report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members
those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the
company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Michael Lowe
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Manchester
27 June 2024
48
Surface Transforms PlcGovernance
Statement of Total Comprehensive Income
For the year ended 31 December 2023
Revenue
Cost of Sales
Gross Profit
Other Income
Gross profit after other income
Administrative Expenses:
Before research and development costs
Research and development costs
Impairment of fixed assets
Total administrative expenses
Operating loss before exceptional items
Exceptional items
Operating loss after exceptional items
Financial Income
Financial Expenses
Loss before tax
Taxation
Loss for the year after tax
Total comprehensive loss for the year attributable to members
Loss per ordinary share
Basic and diluted
Note
3
4
5
9
8
Year to
31 December
2023
£’000
Year to
31 December
2022
(Restated)
£’000
7,312
(3,137)
4,175
57%
16
4,191
4,045
(1,448)
2,597
64%
36
2,633
(5,439)
(3,365)
(9,676)
(5,625)
(9,238)
–
(24,353)
(8,990)
(20,162)
(6,357)
(389)
–
(20,551)
(6,357)
5
(176)
(20,722)
10
1,163
(19,559)
(19,559)
6
(180)
(6,531)
1,264
(5,267)
(5,267)
26
(7.92)p
(2.58)p
The notes on pages 53 to 83 form part of these financial statements
49
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information
Statement of Financial Position
At 31 December 2023
Non-current Assets
Property, plant and equipment
Intangibles
Total non-current assets
Current assets
Inventories
Trade receivables
Other receivables
Tax receivable
Contract fulfillment asset
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Other interest-bearing borrowings
Lease liabilities
Trade and other payables
Total current Liabilities
Non-current liabilities
Government grants
Lease liabilities
Other interest-bearing borrowings
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Capital reserve
Retained loss
Total equity attributable to equity shareholders of the company
As at
31 December
2023
£’000
Note
As at
31 December
2022
(Restated)
£’000
11
12
13
14
14
14
15
15
16
27
15
15
18
16,017
–
16,017
4,469
1,702
1,161
1,196
1,342
6,064
15,934
31,951
(211)
(357)
(5,649)
(6,217)
(174)
(1,429)
(404)
(2,007)
(8,224)
23,727
3,521
67,370
464
15,188
2,237
17,425
3,376
1,051
1,276
1,206
693
14,924
22,526
39,951
(211)
(295)
(4,220)
(4,726)
(188)
(1,335)
(887)
(2,410)
(7,136)
32,815
2,406
58,215
464
(47,628)
(28,270)
23,727
32,815
These financial statements were approved by the board of directors on 27 June 2024 and were signed on it’s behalf by:
D Bundred
Chairman
Company Registered Number 03769702
The notes on pages 53 to 83 form part of these financial statements
50
Surface Transforms PlcFinancial Statements
Statement of Changes in Equity
For the year ended 31 December 2023
Share
capital
£’000
Share
premium
account
£’000
Capital
reserve
£’000
Retained
Loss
£’000
Total
£’000
Balance as at 31 December 2022 as originally stated
2,406
58,215
464
(27,534)
33,551
Impact of restatement
-
-
-
(736)
(736)
Balance as at 31 December 2022 as restated
2,406
58,215
464
(28,270)
32,815
Comprehensive income for the year
Loss for the period
Total comprehensive income for the year
Transactions with owners, recorded directly to equity
Shares issued in the period
Share options exercised
Cost of issue to share premium
Equity settled share based payment transactions
-
-
-
-
1,104
9,921
11
-
-
159
(925)
-
Total contributions by and distributions to the owners
1,115
9,155
-
-
-
-
-
-
-
(19,559)
(19,559)
(19,559)
(19,559)
-
-
-
201
201
11,025
170
(925)
201
10,471
Balance as at 31 December 2023
3,521
67,370
464
(47,628)
23,727
For the year to 31 December 2022 (Restated)
Share
capital
£’000
Share
premium
account
£’000
Capital
reserve
£’000
Retained
Loss
£’000
Total
£’000
Balance as at 31 December 2021 as originally stated
1,952
41,446
464
(22,968)
20,894
Impact of restatement
–
–
–
(251)
(251)
Balance as at 31/12/21 as restated
1,952
41,446
464
(23,219)
20,643
Comprehensive income for the year
Loss for the period
Total comprehensive income for the year
Transactions with owners, recorded directly to equity
Shares issued in the period
Share options exercised
Cost of issue to share premium
Equity settled share based payment transactions
–
–
–
–
449
17,536
5
–
–
61
(828)
–
–
–
–
–
–
–
Total contributions by and distributions to the owners
454
16,769
-
(5,267)
(5,267)
(5,267)
(5,267)
–
–
–
216
216
17,985
66
(828)
216
17,439
Balance as at 31 December 2022 as restated
2,406
58,215
464
(28,270)
32,815
The notes on pages 53 to 83 form part of these financial statements
51
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information
Statement of Cash Flows
For the year ended 31 December 2023
Cash flow from operating activities
Loss after tax for the year
Adjusted for:
Depreciation and amortisation charge
Disposal of fixed assets
Impairment of assets
Non-government grant amortisation
Equity settled share-based payment expenses
Foreign exchange (gains)/losses
Financial expense
Financial income
Taxation
Changes in working capital
Increase in inventories
Increase in trade and other receivables
Increase in Contract Fulfillment Asset
Increase in trade and other payables
Taxation received
Net cash used in operating activities
Cash flows from investing activities
Acquisition of tangible assets
Acquisition of intangible assets
Cash transfer (to)/from current asset investments
Interest received
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Costs for issue of share capital
Payment of finance lease liabilities
Payments of interest bearing borrowings
Interest paid
Net cash generated from financing activities
Net (decrease)/increase in cash and cash equivalents
Foreign exchange losses
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
The notes on pages 53 to 83 form part of these financial statements
52
12 Months to
31 December
2023
£’000
12 Months to
31 December
2022
(as Restated)
£’000
(19,559)
(5,267)
1,262
6
9,238
(13)
201
54
176
(5)
(1,163)
(9,803)
(1,093)
(537)
(649)
649
(11,433)
1,172
(10,261)
(4,769)
(3,279)
–
5
(8,043)
11,195
(925)
(356)
(240)
(176)
9,498
(8,806)
(54)
14,924
6,064
969
–
–
(12)
216
(345)
180
(6)
(1,264)
(5,529)
(2,038)
(974)
(693)
2,068
(7,166)
709
(6,457)
(8,281)
(70)
3,007
6
(5,338)
18,050
(828)
(153)
(473)
(180)
16,416
4,621
345
9,958
14,924
Surface Transforms PlcFinancial Statements
Notes to the Financial Statements
For the year ended 31 December 2023
Accounting policies
1
Surface Transforms plc (the Company) incorporated
and domiciled in the UK, the registered office of
business is Image Business Park, Acornfield Road,
Liverpool L33 7UF.
Surface Transforms is a UK-based developer and
manufacturer of carbon ceramic products for
the brakes market. The company is exempt from
producing consolidated financial statements in
accordance with s402 of the Companies Act 2006
because its four dormant subsidiary companies
are not material individually or in aggregate for
the purpose of giving a true and fair view. The
subsidiaries are ST Aerospace Ltd., ST Automotive
Ceramic Ltd., ST Defence Ltd and ST Racing Ltd.
Statement of compliance
The financial statements have been prepared
in accordance with UK adopted International
Accounting Standards and with the requirements of
the Companies Act 2006 as applicable to companies
reporting under those standards.
The financial statements were approved by the board
on 27 June 2024.
Basis of preparation
The financial statements of Surface Transforms
Plc have been prepared in accordance with UK
adopted International Accounting Standards and
with the requirements of the Companies Act 2006
as applicable to companies reporting under those
standards. The financial statements are prepared
in sterling, which is the functional currency of the
company. Monetary amounts in these financial
statements are rounded to the nearest £’000.
The accounting policies set out below have, unless
otherwise stated, been applied consistently to all
periods presented in these financial statements.
Error Correction under IAS 8
The financial statements reflect a change in
presenting the tax credit on the Statement of Financial
Position (SFP) and in note 14. Previously included in
“Other Receivables”, the tax credit (FY22 £1,206) is now
a separate line item for improved clarity (operating
vs. other receivables). This change is applied
retrospectively, restating prior period amounts in the
SFP and note 14. This change is classified as an error
correction under IAS 8. We believe previously the
balance was not separately presented in accordance
with the requirements of IAS 1. [IAS 8.49(a)].
Prior Year Restatement – Revenue Recognition
for System Integration Services (IFRS 15):
We have reassessed our interpretation of revenue
recognition for multi-year service integration
contracts under IFRS 15. This has resulted in changes
to the criteria upon which revenue is recognised for
certain engineering, testing, and tooling services.
Previously, revenue had been recognised by a careful
assessment of these services over time based on the
stage of completion for each contract, using detailed
project information. This approach which aimed to
reflect a fair representation of revenue earned, aligned
with management’s previous interpretation of IFRS
15. However, since we have been unable to adequately
evidence the right to payment for incomplete
performance obligations, the criteria for recognising
revenue has been revised to only recognise revenue at
a point in time being either upon completion of system
integration by the OEM or when control is passed over
for the contracted services.
Based on this new interpretation management
determined there to be a material difference in how the
company has previously recognised revenue. To comply
with IAS 8 the company is retrospectively applying this
new interpretation and adjusting prior year audited
financial statements. The error in prior year revenue
related to these services amounts to a cumulative
decrease of £1.4million, with £1.1m impacting 2022 and
£0.3m impacting 2021. This revised approach reflects
a reduction in revenue recognised in the years ended
December 31, 2023 and 2022.
These adjustments have also impacted other
financial statement line items, such as cost of sales,
contract receivables and contract fulfillment assets,
as detailed in Note 30. The Company now expects to
recognise more revenue for these services in future
periods as system integrations are completed by the
OEMs as detailed in Note 3.
Going concern – Judgements
The Directors acknowledge the existence of a
material uncertainty related to the Group’s ability to
continue as a going concern. The Company cannot
be assured that it will not exhaust its cash headroom
or breach its covenants, and that there is therefore
a material uncertainty over the going concern of
the Company. The Financial Review details the
challenges we face and our mitigation strategies.
Information on forecasts used in the financial
scenarios is provided below.
53
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
1
Accounting policies continued
The Board of Directors has developed management
forecasts encompassing high case, base case,
downside, and severe but plausible downside
scenarios. While recent performance has shown
strong year-over-year growth, it falls short of the
initial expectations for the base case. Recent equity
financing has bolstered working capital headroom in
all scenarios.
The base case scenario
Our base case scenario anticipates significant
revenue growth, exceeding 170% in 2024 and
moderating to 95% in 2025. This growth is attributed
to successful production output. This scenario
targets an average yield of 84% in 2024 and 91% in
2025. Rework is projected at 9% of output in 2024,
decreasing to 4% in 2025. Equipment capacity
is expected to be achieved in line with Project
Management Office (PMO) plans. While base case
cash headroom is adequate, it will diminish if
performance weakens.
The low case scenario
Our low case scenario anticipates revenue growth,
exceeding 140% in 2024 and moderating to 50%
in 2025. This growth is attributed to successful
production output. This scenario anticipates lower
revenue due to equipment delays, a potential
equipment failure, and reduced yields. Yields are
projected to drop by 6% year-over-year compared
to the base case, indicating a slower improvement
timeline. Output is expected to be curtailed to 85% of
the base case in 2024 and 74% in 2025 due to delays
in implementing growth capital expenditures (capex)
and equipment upgrades. Additionally, a four-week
critical equipment failure simulation is factored in.
Under this scenario, the company may experience
tight working capital headroom at certain points.
Consequently, the company would prioritise slower
utilisation of the LCA ERDF Loan to slow down capital
investment and avoid financial strain. Additionally, a
covenant waiver request might become necessary
and this creates a material uncertainty.
Development Fund which is part funded by the ERDF,
which together with equity financing and retained
operating cashflows, is expected to be sufficient
to fully finance the development and construction
of Phase 2 and commence Phase 3 of the Board’s
manufacturing strategy. A breach of covenant would
require the Liverpool Combined Authority to grant a
waiver or for the Company to renegotiate its banking
facilities, or raise funds from other sources. At the
first test point of 2024 year a breach occurred which
the lender has waived. The lender and borrower have
subsequently formally amended the loan agreement
to establish revised financial covenants for the loan.
Management believes in the Company’s ability to
invest in capacity, people, software and process
optimisation. However, there can be no guarantee
that recent improvements in yield can be achieved
at the pace required and whilst production volumes
are increasing. There can be no guarantee that the
increase in production capacity is effected at the
pace planned for. For these reasons, and that there
is therefore a material uncertainty over the going
concern of the Company.
Share based payments
The share option programme allows employees to
acquire shares of the Company. The fair value is
measured at grant date and spread over the period
during which the employees and Directors become
unconditionally entitled to the options. The fair value
of the options granted is measured using the Black-
Scholes option pricing model, taking into account
the terms and conditions upon which the options
were granted. Volatility is calculated using the
standard deviation of the exercise price with respect
to the share price since admission. The amount
recognised as an expense is adjusted to reflect the
actual number of share options that are expected
to vest except where forfeiture is only due to share
prices not achieving the threshold for vesting.
Cancelled or settled options are accounted for as an
acceleration of vesting and the amount that would
have been recognised over the remaining vesting
period is recognised immediately.
Loan facilities
In December 2023, the Company obtained
additional debt financing, specifically a £13.2 million
Loan Facility from Liverpool City Region Urban
Property, plant and equipment
Property, plant and equipment are stated at cost
less accumulated depreciation and accumulated
impairment losses.
54
Surface Transforms PlcFinancial Statements Where parts of an item of property, plant and
equipment have different useful lives, they are
accounted for as separate items of property, plant
and equipment.
Depreciation is charged to the statement of total
comprehensive income on a straight-line basis over
the estimated useful lives of each part of an item of
property, plant and equipment. The estimated useful
lives are as follows:
• Plant and machinery
• Fixtures and fittings
• Leasehold improvements
• Buildings(right of use)
• Land
15 – 5 years
3 years
Over life of lease
Over life of lease
n/a
Depreciation methods and useful lives are reviewed
at each balance sheet date. No depreciation is
charged on assets classified as capital in progress.
Depreciation is charged once an asset in brought into
use by the business. Land is held at cost, subject to
impairment charges.
ROU leases
The Company leases property and equipment to
support its operations. These leases are typically
property leases with some finance equipment
leases, and lease terms range from 1 to 10 years.
Intangibles
The Company capitalises project development costs
in line with IAS 38 relating the development of the
company’s layered products for it’s customers. The
Company’s policy is to amortise these development
costs over the contracted period. The Company
also assesses each contracts value and impairs
capitalised development costs when it is apparent
that the contract value has diminished. Cost
comprises the aggregate amount paid and includes
costs directly attributable to making the asset
capable of operating as intended. Intangibles stated
at cost less accumulated depreciation. Amortisation
is computed by allocating the amortisation
amount of an asset on a systematic basis over
its useful life and is applied separately to each
identifiable component.
Amortisation is applied to software over 5 years on a
straight-line basis.
Foreign currencies
Transactions in foreign currencies are recorded
at the rate of exchange ruling at the date of
the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated to
the functional currency at the foreign exchange rate
ruling at the balance sheet date. The gains or losses
on retranslation are included in the statement of
total comprehensive income.
Impairment of Assets
The Company reviews the carrying amount of its
tangible and intangible assets at each financial
statement date and for event-driven assessments to
determine potential impairment losses. Impairment
testing is performed by establishing the recoverable
amount of an asset in line with IAS 36 “Impairment
of Assets.” The recoverable amount is the higher of
fair value less costs to sell and value in use. When
assessing value in use, discounted future cash flows
are used to reflect current market assessments and
risks. If the recoverable amount is estimated to be
less than the asset’s carrying amount, the carrying
amount is reduced to its recoverable amount. An
impairment loss is then recognised as an expense in
the Statement of Consolidated Income.
Revenue Recognition for the provision of
brake discs
For core manufacturing activities, where the primary
activity is the sale of manufactured carbon ceramic
brake discs, revenue is typically recognised at a
point in time when control of the goods has passed
to the customer, which usually occurs upon dispatch
of the goods. These contracts typically contain only
one performance obligation, which is the delivery
of the goods. The majority of revenue is currently
recognised at a point in time, when the control of the
goods has passed to the buyer (usually on dispatch
of the goods). These contracts contain only one
performance obligation being the provision of the
specified goods.
55
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
Accounting policies continued
1
For revenue recognition in a bill-and-hold
arrangement, the following criteria must be met:
The contract specifies the good, delivery date,
and payment terms. The seller’s obligations are
identified. The customer has control of the goods
even though physical possession might be delayed.
The Customer has legal title to the goods, bears the
risk of loss or damage to the goods, Can use or sell
the goods to a third party, and we have no significant
remaining obligations except for delivery. The price
is determined and collectible. As these criteria are
met, revenue is recognised at the point of sale even
if the goods are not physically delivered yet. This is
because the customer has assumed the significant
risks and rewards of ownership.
Revenue Recognition for System Integration
Services (IFRS 15)
Revenue for contracted services, including
engineering, testing, and tooling services provided
during system integration projects, is recognised at
a point in time when the performance obligation is
deemed satisfied.
The performance obligation for these contracted
services is considered satisfied when the system
integration by the OEM is complete, or when control
is passed over for the contracted services.
Government grants
Capital grants are initially recognised as deferred
income and credited to the statement of total
comprehensive income over the life of the asset to
which it relates.
Post-retirement benefits
The Company operates a workplace pension scheme
and contributes to specific employees’ personal
pension schemes. The amount charged to the profit
and loss account represents the contributions
payable to employees’ personal pension schemes
and workplace pensions during the accounting year.
Leases and right of use assets
The company assesses whether a contract is
or contains a lease at inception of the contract.
A lease conveys the right to direct the use and
obtain substantially all the economic benefits of
an identified asset for a period of time in exchange
for consideration.
A right of use asset and corresponding lease liability
are recognised at commencement of the lease. The
lease liability is measured at the present value of the
lease payments, discounted at the rate implicit in the
lease, or if that cannot be readily determined, at the
lessee’s incremental borrowing rate specific to the
term, country, currency and start date of the lease.
The lease liability is subsequently measured at
amortised cost using the effective interest rate
method. The right of use asset is initially measured
at cost, comprising: the initial lease liability;
any lease payments already made less any lease
incentives received; initial direct costs. The right of
use asset is subsequently depreciated on a straight-
line basis over the shorter of the lease term or the
useful life of the underlying asset. The right of
use asset is tested for impairment if there are any
indicators of impairment.
Leases of low value assets and short-term leases
of 12 months or less are expensed to the income
statement, as are variable payments dependent on
performance or usage, ‘out of contract’ payments
and non-lease service components.
Reserves
Share Capital
Share capital reflects the nominal value of the shares
issued by the Company.
Share Premium
This reserve records the amount above the nominal
value received for shares sold, less transaction costs.
Capital Redemption Reserve
This reserve records the nominal value of shares
repurchased by the Company.
56
Surface Transforms PlcFinancial Statements Research expenditure
Expenditure on research activities is recognised in
the statement of total comprehensive income as an
expense as incurred.
Deferred taxation is provided for in full at the tax
rate which is expected to apply to the period when
the deferred taxation is expected to be realised,
including on tax losses carried forward.
Development expenditure
Expenditure arising from the Company’s
development is recognised only if all of the following
conditions are met and an asset is created that can
be identified:
• it is probable that the asset created will generate
future economic benefits;
• the development cost of the asset can be
measured reliably;
• the Company has the intention to complete the
asset and the ability and intention to use or sell it;
• the product or process is technically and
commercially feasible; and
• sufficient resources are available to complete the
development and to either sell or use the asset
• the company owns the know how and IP
Expenditure is only capitalised if the company has
entered a formal program or development process
with the customer. The amount is then amortised
straight line over the life of the contract, refer to the
note in Intangibles.
Where these criteria have not been achieved,
development expenditure is recognised as an
expense in the statement of total comprehensive
income in the period in which it is incurred.
Inventories
Inventories are stated at the lower of cost and net
realisable value. In determining the cost of raw
materials and consumables the purchase price is
used. For work in progress and finished goods, cost
is taken as production cost.
Taxation
The charge for taxation is based on the loss for the
year and takes into account taxation deferred or
accelerated arising from temporary differences
between the carrying amounts of certain items for
taxation and for accounting purposes.
Deferred taxation assets are recognised only to
the extent that it is probable that future taxable
profits will be available against which the temporary
differences can be utilised.
Tax credits received in relation to research and
development expenditure are accrued during the
year that the expense is incurred and included in the
tax line in keeping with the HMRC small company
scheme. The Board considers that there is sufficient
probability of future receipts given the Company’s
history of receiving tax credits from HMRC.
Financial Instruments
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially
at transaction value less attributable transaction
costs. Subsequent to initial recognition, interest-
bearing borrowings are stated at amortised cost
using the effective interest method.
Non-derivative financial instruments
Non-derivative financial instruments comprise
trade and other receivables, cash and trade and
other payables.
Trade receivables
Trade and other receivables are recognised initially at
transaction value. Subsequent to initial recognition
they are measured at amortised cost using the
effective interest method, less any impairment
losses. Due to the nature of the current business
the Company provides for impairments to trade
receivables on an individual basis using management
judgement. Trade and other receivables represent
financial assets and are considered for impairment
on an expected credit loss model. In accordance with
IFRS 9, all receivables, including unbilled receivables,
are assessed for impairment going forward,
the expected credit loss (ECL). The assessment
incorporates historical information (past customer
payment behavior) and forward-looking estimates of
potential credit losses and economic risk.
57
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information Critical accounting estimates and judgements
The preparation of financial statements in
conformity with adopted IFRSs requires
management to make judgements, estimates and
assumptions that affect the application of policies
and reported amounts of assets and liabilities,
income and expenses.
Key estimates assessed by management are as
follows:
Impairment
IAS 36, Impairment of Assets, requires us to assess
the recoverable amount of our assets annually and
whenever there is an indication of impairment. The
recoverable amount is the higher of fair value less
costs of disposal and value in use. Estimating the
recoverable amount requires significant judgment,
particularly when using valuation techniques
such as discounted cash flow models. Key factors
considered in this process include:
• Discount rate: The discount rate reflects the
time value of money and the risks specific to the
asset. Determining the appropriate discount
rate requires significant judgment and involves
estimating the entity’s weighted average cost of
capital (WACC) and incorporating additional risk
premiums for factors such as market sensitivities
and uncertainties in future cash flows.
• Cash flow projections: The accuracy of the
recoverable amount is highly dependent on the
reliability of the underlying cash flow projections
used in the discounted cash flow model. These
projections require careful consideration of
customer demand, execution and operational
plans.
Notes to the Financial Statements continued
Accounting policies continued
1
Contract fulfillment assets (IFRS 15.95)
The Company recognises certain engineering
services as contract fulfillment costs in accordance
with IFRS 15. These services meet the following
criteria for qualifying as a contract asset:
• Directly Linked to Fulfilling a Contract: The system
integration services (including engineering,
testing, and tooling services) are incurred
specifically to fulfill a customer contract and are
not for general or future use.
• Expected Recoverable Cost: The Company has
reasonable certainty that it will recover the
costs from the customer through payment or by
generating sufficient contract margins.
• Measurable Cost: The cost of the engineering
services can be reliably measured based on
detailed project information.
Costs that meet these criteria will be recognised
as a contract fulfillment asset on the statement of
financial position. The asset will be 100% expensed
upon completion of system integration by the OEM
or when control is passed over for the contracted
services and revenue is recognised at the same
point in time.
This policy is applied retrospectively, with any prior
period adjustments reflected in the current year’s
financial statements.
Trade and other payables
Financial liabilities are initially measured at the
fair value of the consideration received, adjusted
for directly attributable transaction costs.
These liabilities are subsequently measured at
amortised cost. The company derecognises financial
liabilities when the obligations that gave rise to them
are extinguished.
Cash and cash equivalents
Cash is defined as cash in hand and on demand
deposits. Cash equivalents are defined as short-term
highly liquid investments with original maturities of
three months or less.
58
Surface Transforms PlcFinancial Statements Deferred tax
Management estimation is required to determine
the amount of deferred tax assets recognised.
This requires considering the likelihood and timing
of future taxable profits, along with potential
tax planning strategies. Currently, management
hasn’t recognised deferred tax assets exceeding
the recognised deferred tax liability because they
believe future taxable profits are possible, but not
probable. However, a deferred tax asset of £4,280K
(compared to £2,646k in 2022) is recognised based
on the potential to offset future tax liabilities with
deductible differences as per IAS 12.28. Refer to note
17 for further details on the unrecognised deferred
tax amount.
Key judgements assessed by management are as
follows:
Research and development expenditure
The Board considers the definitions of research and
development costs as outlined in IAS 38: Intangible
Assets when determining the correct treatment
of costs incurred. Where such expenditure is
technically and commercially feasible, the Company
intends and has the technical ability and sufficient
resources to complete development, future
economic benefits are probable and if the Company
can measure reliably the expenditure attributable
to the intangible asset it is treated as development
expenditure and capitalised on the statement of
financial position.
In considering whether an item of expenditure
meets these criteria, the Board applies judgement
in determining when the items are technically and
commercially feasible.
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 will be used to invest in
new manufacturing facilities, thereby increasing
our production capacity. It is solely for capital
investment purposes and will be drawn down for
eligible capital projects over the next 24 months
until December 31, 2025. Loan funds are held in a
“blocked account”, while the cash physically resides
in a company account, the European Regional
Development Fund (ERDF) approval process dictates
that the company does not have full control over
the funds. Due to this lack of control, the cash is not
recognised on the company’s balance sheet. The
loan liability will only be recognised once funds are
drawn down, there has been no utilisation of the loan
as at 31 December 2023 and no financial asset or
liability has been recognised.
New standards and interpretations
From 1 January 2023 the following became effective
and were adopted by the Company:
• Amendments to IAS 1 and IFRS Practice Statement
2 – Disclosure of Accounting Policies (effective
1 January 2023)
• Amendments to IAS 8 – Definition of Accounting
Estimates (effective 1 January 2023)
• Amendments to IAS 12 – Deferred Tax related
to Assets and Liabilities arising from a Single
Transaction (effective 1 January 2023)
• Amendments to IAS 12 – International tax reform –
pillar two model rules (effective 1 January 2023)
• IFRS 17 – Insurance Contracts, as amended in
December 2021 (effective 1 January 2023)
Their adoption did not have a material effect on the
Company’s profit for the year or equity.
• New standards, amendments and interpretations
issued but not yet effective and not early adopted
• Amendments to IAS 1 – Non-current Liabilities with
Covenants (effective 1 January 2024)
• Amendments to IFRS 16 – Lease Liability in a Sale
and Leaseback (effective 1 January 2024)
• Amendments to IAS 7 and IFRS 7 – Supplier finance
(effective 1 January 2024)
• Amendments to IAS 21 – Lack of Exchangeability
(effective 1 January 2025).
It is not considered that the above standards and
amendments will have a significant effect on the
results or net assets of the Company.
59
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
Segment Reporting
2
The Company operates in a single segment being the manufacture and sale of carbon fiber materials and
associated technologies. This segment includes all manufacturing, development, and sales activities related
to carbon fiber materials, regardless of the specific market or product application. All carbon fiber materials
are manufactured using comparable processes, further supporting a single segment view. The Company
recognises its product technology as carbon fiber-reinforced ceramic material, which can be customised into
various shapes for diverse end-user applications.
The Company currently operates one manufacturing facility, eliminating the need to allocate resources or
discriminate between markets or product lines. The Chief Executive Officer, who acts as the chief operating
decision maker, reviews performance information for the entire company and does not allocate resources
based on individual markets or products.
Revenue by geographical destination
3
Revenue by Geographical Destination
United Kingdom
Germany
Sweden
Netherlands
Rest of Europe
United States of America
Rest of World
2023
£’000
845
492
168
583
117
5,006
102
7,312
2022
(Restated)
£’000
1,623
349
354
1
341
1,177
200
4,045
System Integration Services (Not Applicable): While our accounting policies mention system integration
services, we did not recognise any revenue related to these services in fiscal year 2023 or 2022. Therefore, all
revenue recognised in the current and prior year pertains solely to the sale of goods category. This approach
ensures transparency and accurately reflects the nature of our current business activities.
60
Surface Transforms PlcFinancial Statements
The table below presents the transaction price allocated to the remaining performance obligations for our
system integration services, as required by IFRS 15.120. These obligations represent unperformed services
that we will deliver to customers in the future and for which we will recognise revenue upon completion of
system integration by the OEM or when control is passed over for the contracted services. The table provides
a breakdown of the estimated recognition of the transaction price by year, reflecting the expected timing of
revenue recognition.
As at 31 December 2023:
Total transaction price allocated to the remaining
performance obligations
As at 31 December 2022:
Total transaction price allocated to the remaining
performance obligations
4
Operating loss and auditor’s remuneration
2024
£’000
2025
£’000
2026
Onwards
£’000
Total
£’000
2,437
486
–
2,923
2023
£’000
2024
£’000
2025
Onwards
£’000
Total
£’000
–
2,437
–
2,437
Operating loss is stated after charging
Loss on disposal of property plant and equipment
Depreciation of property plant and equipment
Impairments (see 4.2 below)
Amortisation of Intangible assets
Research costs expensed as incurred (see 4.1 below)
Exchange losses/(gains)
after crediting
Government grants
12 months to
31 December
2023
£’000
12 months to
31 December
2022
(Restated)
£’000
6
1,189
9,238
73
9,676
54
0
865
–
104
5,625
(345)
13
36
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Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information
Notes to the Financial Statements continued
Operating loss and auditor’s remuneration continued
4
Auditors remuneration
Amounts receivable by auditors and their associates in respect of:
Fees payable to the company auditor for the audit of the financial statements
Total
Fees payable to the company auditor for other services
Financial due diligence for debt financing arrangement
12 months to
31 December
2023
£’000
12 months to
31 December
2022
£’000
170
170
80
80
78
78
–
–
4.1 Research costs expensed in the year rose by £4.1 million to £9.7 million during the period. R & D spend was
focused on process development more than product, reflecting the considerable technical spend in the
year fixing the manufacturing problems.
4.2 Impairments
IAS 36 requires us to assess the recoverable amount of our assets annually and whenever there is an indication
of impairment.
The Company operates as a single Cash-Generating Unit (CGU) for impairment testing under IAS 36. Its cash
inflows and value in use are best assessed at the entire company level due to its singular Business, it has
no separate operating segments with independent cash flows, all revenue and cash flows stem from the
Company’s core activities. This approach provides a more meaningful impairment assessment compared to
individual asset testing or further grouping.
To apply IAS 36 the company has necessarily included the recent fundraises as one market assessment
indication along with the risk inherent in the company. Management’s discounted cash flow model assumed
no expansion capital expenditure or growth beyond current capacity and applied a pre-tax discount rate of
14% based on our determination of our weighted average cost of capital. The model shows growth against
assets in use at the balance sheet date for a period of 2 years to December 2025, after that period, a terminal
growth rate of 2% has been applied to all balances, except tax (as the company has a large deferred tax asset
which takes 7 years before a full year of tax is recognised). This initially demonstrated no impairment as the
discounted cash flows exceeded the carrying value of assets. In addition to the discounted cash flow (DCF)
valuation, the Company considered fair value less costs of disposal (FVLCOD) as an alternative measure of
recoverable amount. This involved referencing recent observable market capitalisation of comparable assets.
While this comparison did not suggest an impairment, it is acknowledged that it is not a formal business
valuation and may not fully capture the Company’s specific circumstances. The DCF valuation was used as the
primary basis for the impairment assessment.
In order to address the combined sensitivities and challenges of cash flow forecasting risk and the potential
gap between implied market value and carrying value, we have reassessed the pre-tax discount rate.
The company has determined that the recoverable amount calculations are most sensitive to changes in
revenue and discount rates. To determine the final recoverable amount, taking on board the sensitivities and
challenges described a Value in Use (VIU) approach was employed, incorporating a pre-tax discount rate of
22% to reflect a further risk premium of 8%. This resulted in a recoverable amount lower than the carrying
value, and an impairment charge of £6.2 million, with £5.2 million allocated to capitalised development costs
and £1.0 million allocated to software and right-of-use assets. The calculation is sensitive to any movement in
these assumptions and with regard to the discount rates a 1% reduction would lead to a £1.2m increase in the
carrying value, whilst a 1% increase leads to a £1m reduction in carrying value.
62
Surface Transforms PlcFinancial Statements
The company also identified an inoperable furnace and the impairment reflects recoverable amount. No legal
recovery asset recognised (IAS 37). In total an impairment charge of £9,238K has been taken in 2023, the split
of impairment charge by asset is shown below;
Tangible Fixed Assets
Land and Buildings
Capital in progress
Intangible Fixed Assets
Software
Capitalised R&D
Note
At Cost
Amortisation
NBV
11
11
12
12
736
3,060
587
5,233
9,615
–
–
(367)
(11)
(378)
736
3,060
220
5,222
9,238
Exceptional items
5
The company recognises £389,000 of other non- recurring exceptional costs in the year relating to
restructuring costs.
Remuneration of directors
6
The aggregate amount of emoluments paid to Directors in respect of qualifying services during the period was
£674,957 (2022: £630,150).
The amounts set out above include remuneration in respect of the highest paid director of £334,500 (2022:
£291,016). Pension contributions of £24,453 (2022: £25,468) were made to a money purchase scheme on behalf
of two directors.
The share transactions and key compensations of management designated as Key Management Personnel are
disclosed in note 20 Related Party Disclosures.
Staff numbers and costs
7
The average number of persons employed by the Company (including Directors) during the year, analysed by
category, was as follows:
Staff numbers and costs
Directors
Other employees
Year to 31 December
2023
2022
6
141
147
6
90
96
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Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information
Notes to the Financial Statements continued
Staff numbers and costs continued
7
The aggregate payroll costs of these persons were as follows:
Wages and salaries
Social security costs
Other pension costs
8
Financial Expenses
Interest expense in relation to lease liabilities
Other interest charges
Total interest expense on financial liabilities measured at amortised cost
9
Financial Income
Total Interest Income
Year to 31 December
2023
£’000
2022
£’000
5,684
3,552
687
262
436
196
6,633
4,184
Year to 31 December
2023
£’000
129
47
176
2022
£’000
99
81
180
Year to 31 December
2023
£’000
(5)
2022
£’000
(6)
64
Surface Transforms PlcFinancial Statements
10
Taxation
Analysis of credit in year
UK corporation tax
Adjustment in respect of prior years – R&D tax allowances
R&D tax allowance for current year
Total income tax credit
2023
£’000
2022
(Restated)
£’000
33
(1,196)
(1,163)
(59)
(1,205)
(1,264)
The tax assessed for the year is lower (2022: lower) than the rate of corporation tax in the UK of 25% (2022: 19%).
The differences are explained below:
Reconciliation of effective tax rate
Loss for year
Total income tax credit
Loss excluding income tax
Current tax at average rate of 23.5%
Effects of:
Non-deductible expenses
Change in unrecognised timing differences
Current year losses for which no deferred tax recognised
R&D tax allowance for current year
Adjustment in respect of prior years – R&D tax allowances
Income tax credit
Year to 31 December
2023
£’000
2022
(Restated)
£’000
(19,559)
(1,163)
(20,722)
(4,870)
(5,268)
(1,264)
(6,532)
(1,241)
1
1
4,869
(1,196)
33
1,240
(1,205)
(59)
(1,163)
(1,264)
In the Spring Budget 2021, the UK Government announced that from 1 April 2023 the corporation tax rate would
increase to 25% (rather than remaining at 19% previously enacted). This new law was substantively enacted on
24 May 2021. For the financial year ended 31 December 2023, the current weighted average tax rate was 23.5%.
Deferred taxes as at the reporting date have been measured using these enacted tax rates.
65
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information
Notes to the Financial Statements continued
11
Property, plant and equipment
Land and
Buildings
£’000
Leasehold
improvements
£’000
Plant and
machinery
£’000
Fixtures and
fittings
£’000
Capital in
progress
£’000
Total
£’000
Cost
At 31 December 2021
1,934
252
3,916
542
5,616
12,260
Transfers from Capital in
Progress
Transfers to Intangible assets
Additions
–
–
At 31 December 2022
1,934
Transfers from Capital in
Progress
Additions
Disposals
Impairment
At 31 December 2023
Depreciation
At 31 December 2021
Charge
At 31 December 2022
Charge
Disposals
At 31 December 2023
Net book value
At 31 December 2021
At 31 December 2022
At 31 December 2023
Impairment Loss 2023
–
–
–
(736)
1,198
552
142
694
142
–
836
1,381
1,240
362
(736)
12
2,873
5
(2,890)
–
(65)
6,714
18,909
–
5,837
(57)
(65)
5,241
7,902
(1,408)
4,101
–
147
411
–
6
–
–
1,285
8,074
1,408
1,634
(51)
–
41
588
–
96
(6)
–
(3,060)
(3,795)
417
11,065
678
7,535
20,894
141
24
165
34
–
199
111
246
218
–
1,713
656
2,369
953
(27)
3,295
2,203
5,705
7,770
–
450
43
493
60
(6)
547
93
95
131
–
–
–
–
–
–
–
5,616
7,902
7,535
(3,060)
2,856
865
3,721
1,189
(32)
4,878
9,403
15,188
16,017
(3,795)
The carrying value of certain fixed assets has been assessed for impairment. An impairment loss of
£3.8 million has been recognised in the year. Please see note 4 for further detail.
66
Surface Transforms PlcFinancial Statements
12
Intangibles
Cost
At 31 December 2021
Transfers from Capital in Progress
Additions
At 31 December 2022
Transfers from Capital in Progress
Additions
Impairment
At 31 December 2023
Amortisation
At 31 December 2021
Charge for period
At 31 December 2022
Charge for period
Impairment
At 31 December 2023
Net book value
At 31 December 2021
At 31 December 2022
At 31 December 2023
Impairment Loss
Software
£’000
Capitalised
R&D
£’000
446
0
1,629
2,075
332
65
70
467
0
120
Total
£’000
778
65
1,699
2,542
0
3,158
3,278
(587)
(5,233)
(5,820)
–
199
97
296
71
(367)
–
134
171
–
220
–
2
7
9
2
(11)
–
–
201
104
305
73
(378)
–
444
2,066
–
577
2,237
–
5,222
5,442
Capitalised R&D assets are primarily development costs for product and are amortised over the expected
volume of the contract. All intangible assets have been impaired in the year following a value in use
assessment. Please see note 4 for further detail.
67
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information
Notes to the Financial Statements continued
13
Inventories
Raw materials and consumables
Work in progress
Finished goods
Year to 31 December
2023
£’000
2,286
1,187
997
2022
£’000
2,117
491
768
4,469
3,376
Raw materials, consumables and changes in finished goods and work in progress recognised as cost of
sales in the year amounted to £3,137k (2022 restated: £1,448k). There is no significant difference between the
replacement cost of work in progress and finished goods and their carrying amounts.
14
Trade and other receivables
Trade receivables
Provision for impairment on trade receivables
Net trade receivables
Other receivables
Prepayments and accrued income
Contract Assets
Total other receivables
Tax receivable
Trade and other receivables
All receivables fall due within one year.
Year to 31 December
2023
£’000
1,757
(55)
1,702
222
939
–
1,161
1,196
4,058
2022
(Restated)
£’000
1,093
(42)
1,051
837
439
–
1,276
1,206
3,532
The Company uses the expected credit loss (ECL) model under IFRS 9 to assess credit risk for all receivables.
This model considers historical payment performance, and forward looking factors such as economic
forecasts, and individual customer creditworthiness.
Bad debts amounting to £Nil were written off in the year (Dec 2022; £4k). Exposure to credit risk arises from
the potential of a customer defaulting on their invoiced sales. The Company closely monitors the credit risk
of customers and offers credit only to those with healthy scores, on- going credit risk is managed through
regular review of ageing analysis. Based on the current assessment and the Company’s strong contractual
relationships with major customers, the estimated ECL for unbilled receivables is currently low. All trade
receivables (billed and unbilled) have been reviewed for expected credit loss impairment and the expected
credit loss (ECL) is estimated to be £55k (Dec 2022; £43k) and is accounted for under “ Provision impairment
on trade receivables”.
68
Surface Transforms PlcFinancial Statements
Interest-bearing borrowings and lease liabilities
15
This note provides information about the contractual terms of the Company’s interest-bearing borrowings
and liabilities which are measured at amortised cost. For more information about the Company’s exposure to
interest rate and foreign currency risk see note 22.
Current liabilities
Lease Liabilities
Interest bearing borrowings
Non-current liabilities
Lease Liabilities
Interest bearing borrowings
As at 31 December
2023
£’000
2022
£’000
357
211
568
1,429
404
1,833
295
211
506
1,335
887
2,222
Finance lease liabilities are payable as follows:
Finance lease liabilities are payable
Future
minimum
lease
payments
2023
£’000
475
1,742
2,217
Present value
of minimum
lease
payments
2023
£’000
357
1,429
1,786
Future
minimum
lease
payments
2022
£’000
418
2,014
2,432
Due in
2-5 years
£’000
Due in
6-10 years
£’000
433
1,145
–
1,578
–
597
–
597
Interest
2023
£’000
(119)
(313)
(432)
Due in
1 year
£’000
248
475
5,649
6,372
Present value
of minimum
lease
payments
2022
£’000
295
1,608
1,903
Carrying
amount
£’000
615
1,787
5,649
8,051
Interest
2022
£’000
(123)
(406)
(528)
Total
Contractual
cash flows
£’000
681
2,217
5,649
8,547
Less than one year
More than one year
As at 31 December 2023
Interest bearing borrowings
Lease liabilities
Trade and other payables
Total Non-Derivatives
69
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information
Notes to the Financial Statements continued
Interest-bearing borrowings and lease liabilities continued
15
The presentation of hire purchase leases and ROU leases has been changed for the current year to classify
them together. However, due to the immateriality of the difference in the prior year, the prior year’s
presentation has not been restated.
As at 31 December 2023
Other Borrowings (MSIF Loans)
As at 31 December 2022
Other Borrowings (MSIF Loans)
Due in
1 year
£’000
211
Due in
1 year
£’000
211
Due in
2-5 years
£’000
404
Due in
2-5 years
£’000
614
Total
£’000
614
Total
£’000
825
MSIF Loans
In March 2021, the Company secured a £1 million loan from River Capital Management Limited (formerly Alliance
Fund Managers Limited) from the Merseyside Investment Fund (MSIF) supported by the Liverpool City Region
Combined Authority’s Flexible Growth Fund programme. As of the 31 December 2023 the Company has a
remaining loan balance of £614,000.
Future Loan Funding
In December 2023, the Company secured a £13.2 million funding facility from the LCR UDF Limited partnership.
This loan facility is supported by the Liverpool city region’s Urban Development Fund, which is part-funded
by the European Regional Development Fund (ERDF). The loan will be used to invest in new manufacturing
facilities, thereby increasing our production capacity. It is solely for capital investment purposes and can
be drawn down for eligible capital projects over the next 24 months until 31 December 2025. There is no
enforceable right to receive cash until a utilisation request is made with applicable supporting documentation
evidencing eligible projects, the loan liability will only be recognised once funds are drawn down. £Nil had been
drawn down at the period end and no financial liability at 31 December 2023 is recognised. Future drawdowns
will be subject to interest at the EC reference rate for the period, which as at 1 March 2024 is 5.65%, with a
commercial margin is 6.50% the aggregate interest rate 12.15%.
16
Trade and other payables
Trade payables
Taxation and social security
Accruals and deferred income
Contract Liabilities
70
12 months to 31 December
2023
£’000
3,859
357
841
593
5,649
2022
(Restated)
£’000
2,031
220
1,404
566
4,220
Surface Transforms PlcFinancial Statements
17
Deferred tax
Difference between accumulated depreciation and amortisation
and capital allowances
Tax losses
Un-recognised deferred tax asset
As at 31 December
2023
£’000
2022
£’000
4,280
(8,934)
(4,654)
2,646
(5,955)
(3,309)
The Company has an un-recognised deferred tax asset at 31 December 2023 of £4,654k (2022; £3,309k)
relating principally to tax losses which the Company can offset against future taxable profits. The Company
has recognised a deferred tax liability of £4,280k as these are recognised as soon as they arise. The Company
anticipates that an equal value of its deferred tax asset could be utilised against this liability and this has been
deferred against the deferred tax liability.
18
Called up share capital
Allotted called up and fully paid of £0.01 each
At 31 December 2021
Issue of shares
At 31 December 2022
Issue of shares
At 31 December 2023
Number
195,188,319
45,424,914
240,613,233
111,459,405
352,072,638
£’000
1,952
454
2,406
1,115
3,521
During the year 1,120,000 shares were issued through the exercise of options.
During the year the Company issued 110,339,405 ordinary shares in the Company in a placing, subscription and
open offer taking the total issued share capital to 352,072,638 and raising a total of £10.1m after fees.
The Company operated a share incentive scheme for the benefit of the Directors and certain employees. All
options were granted at the discretion of the Board. The scheme granted options to purchase ordinary shares
of £0.01 each.
The options granted to Directors, date of grant and exercise price under the scheme are set out in the report
on Directors’ remuneration on page 34.
In addition to the Directors’ share options certain employees and former employees have been granted options
the details are listed in note 27.
Pension scheme
19
The Company contributes to specific employees’ personal pension schemes. The pension charge for the year
represents contributions payable by the Company to the schemes and amounted to £320k (2022; £341k). During
the year two Directors and several senior managers opted to enter salary exchange arrangements whereby
they sacrificed salary for increased pension contributions. These arrangements accounted for £232k of the
pension contributions (2022; £178k).
71
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information
Notes to the Financial Statements continued
20 Related party disclosures
Transactions with key management personnel
Individuals are designated as Key Management Personnel (KMP) due to their involvement in planning, directing,
controlling, and making crucial decisions for the company. Share transactions and Compensation paid to key
management personnel are reported below;
During the year 4 directors acquired 930,608 shares in the Company through an open market transaction and
5 Directors participated in the placing and subscription, and the shares acquired in both these events are
detailed below:
D Bundred
Dr K Johnson
I Cleminson
J Woodhouse
M Taylor
I Maddock
Pre-employment
open market
transaction
Open Market
Transaction
Share
placing and
subscription
Acquired
in Year
n/a
n/a
n/a
n/a
n/a
13,763
13,763
155,101
500,000
655,101
–
150,000
150,000
155,101
–
155,101
310,203
100,000
410,203
310,203
500,000
810,203
–
100,000
113,763
930,608
1,350,000
2,294,371
* Number of £0.01 ordinary shares
On 21 April 2023 Chief Financial Officer, Michael Cunningham has exercised his rights over 990,000 options
in the Company at an exercise price of 15.25p. Mr Cunningham then sold 917,168 ordinary shares of 1p each in
the Company (“Ordinary Shares”) at an average price of 32.98p. Following these transactions, Mr Cunningham
retained a beneficial interest in 242,832 Ordinary Shares. Michael Cunningham resigned from the Board as CFO
on 31 May 2023.
Compensation paid to key management personnel in the year is as follows:
Year to 31 December
2023
£’000
751
86
61
202
30
1,129
2022
£’000
1,131
50
58
216
0
1,455
Base salary
Bonuses
Benefits ( fees, pension)
Share-based payments
Termination benefits
72
Surface Transforms PlcFinancial Statements
21
Net debt
Current liabilities
Non-current liabilities
Note
15
15
Total debt
Cash
Net debt (cash)
Interest-bearing borrowings and lease liabilities
Interest-bearing borrowings and lease liabilities
Lease Liabilities
Interest bearing borrowings
Liabilities arising from financing activities
Cash
Total net debt
Lease Liabilities
Interest bearing borrowings
Liabilities arising from financing activities
Cash
Total net debt
As at
1 January
2023
£’000
(1,489)
(1,239)
(2,728)
14,925
12,197
As at
1 January
2022
£’000
(1,579)
(1,712)
(3,291)
9,959
6,668
Cash
Flow
£’000
534
258
792
(8,807)
(8,016)
Cash
Flow
£’000
189
554
743
4,621
5,364
As at 31 December
2023
£’000
568
1,833
2,401
2022
£’000
506
2,222
2,728
(6,064)
(14,924)
(3,663)
(12,196)
Other
non-cash
movements
£’000
31 December
2023
£’000
(831)
367
(1,786)
(614)
(464)
(2,400)
(54)
(518)
6,064
3,664
Other
non-cash
movements
£’000
31 December
2022
£’000
(99)
(81)
(180)
345
165
(1,489)
(1,239)
(2,728)
14,925
12,197
The presentation of HP and ROU leases has been changed for the current year to classify them together.
However, due to the immateriality of the difference in the prior year, the prior year's presentation has not been
restated and the total 2022 liabilities arising from financing activities has not changed.
22 Financial instruments
The Company’s policies with regard to financial instruments are set out below. The risks arising from the
Company’s financial assets and liabilities are set out below along with the policies for their respective
management.
Currency risk
The Company transacts business in foreign currencies and therefore incurs some transaction risk due to
potential foreign currency cash balances. At the year end the Company held a balance of $3k (£2k) and a
balance of €109k (£95k).
The Company’s exposure to foreign currency risk was as follows, this is based on the carrying amount for
monetary financial instruments.
73
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information
Notes to the Financial Statements continued
22 Financial instruments continued
Sensitivity analysis
A ten per cent strengthening of the pound against the US Dollar and the Euro at 31 December 2023 would have
increased losses by the amounts shown below. This analysis assumes that all other variables, most notably,
interest rates, remain constant. The analysis is performed on the same basis for December 2022.
31 December 2022
31 December 2023
US Dollar
£’000
12
(35)
Euro
£’000
20
44
A ten percent weakening of the pound against the US Dollar and the Euro at 31 December 2023 would have
reduced loses by the amounts shown below; on the basis all other variables remain constant.
31 December 2022
31 December 2023
US Dollar
£’000
(15)
43
Euro
£’000
(25)
(54)
Price risk
The Company manages price risk associated with large contracts with major Original Equipment
Manufacturers (OEMs). These contracts typically fix the price per part for the entire manufacturing period,
mitigating the risk of price reductions based on volume fluctuations. However, the Company acknowledges
the potential impact of inflationary pressures on raw material and labour costs, which could increase the cost
of manufacturing. To address this long-term challenge, the Company has a commenced a capital programme
which invests in technology for scale alongside the pursuit of operational efficiencies and improved processes.
These combined efforts aim to drive down manufacturing costs over time.
Credit risk
The Company uses the expected credit loss (ECL) model under IFRS 9 to assess credit risk for all receivables,
including unbilled receivables. This model considers historical payment performance, and forward looking
factors such as economic conditions and forecasts, and individual customer creditworthiness.
The Company operates a closely monitored collection policy. The Company closely monitors the credit risk of
customers and offers credit only to those with healthy scores.
All sales to retrofit and smaller OEM customers are on a payment before shipping basis and only OEM’s qualify
for significant levels of credit. Where appropriate the Company has in the past and would again secure trade
credit insurance for significant debt. The total credit risk is therefore £1,702k (2022; £860k).
74
Surface Transforms PlcFinancial Statements The aging of trade receivables at the reporting date was:
Opening balance
Amounts written off
Amounts provided for
Provision at year end
31 December
2023
31 December
2022
43
–
12
55
36
(4)
10
43
There was an amount of £55k (December 2021; £43k) in the allowance for impairment in respect of trade
receivables and unbilled receivables. The average debtor days are 94 days (2022; 64 days), the average creditor
days are 54 days (2022; 31 days).
Liquidity risk
The Company’s objective is to maintain a balance between continuity and flexibility of funding through the use
of short- term deposits. The contractual maturity of all cash, trade and other receivables at the current and
preceding balance sheet date is within one year. The contractual maturity of trade and other payables at the
current and preceding balance sheet date is within 3 months.
Interest rate risk
At the balance sheet date, the interest rate profile of the Company’s interest-bearing financial instruments was:
Fixed rate instruments:
Lease liabilities
Less than one year
More than one year
Total
Other Loans and Borrowings
Less than one year
More than one year
Total
2023
£’000
2022
£’000
358
1,429
1,787
211
404
615
295
1,335
1,630
211
887
1,098
75
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information
Notes to the Financial Statements continued
22 Financial instruments continued
Sensitivity analysis
A 20% increase in the BOE base rate would result in an increase in interest on the interest bearing loan of £252k.
2023 interest at current rate of 2.5%
2023 interest at sensitivity rate of 22.5%
Increase in interest payments in 2023
£’000
47
299
252
Capital management
The Company manages it’s capital to ensure that it will be able to continue as a going concern and satisfy it’s
debt as it falls due whilst also maximising opportunities to progress the development of the business. The
Capital structure of the Company consists of cash and equity attributable to shareholders comprising issued
capital. The key indicator of capital management performance used by management is the level of cash
available to the Company.
Financial assets are comprised of £15,934k which consists of cash and trade receivables.
Financial liabilities are comprised of £8,224k which consists of trade payables, lease liabilities and current and
long-term interest-bearing loans.
L&B
£’000
1,240
–
(142)
–
(736)
362
1,382
–
(142)
1,240
Other
£’000
55
135
(47)
(25)
–
118
18
63
(26)
55
Total
£’000
1,294
135
(189)
(25)
(736)
479
1,399
63
(168)
1,294
23 Right of use assets
Amounts recognised in the income statement
Net Carrying value at 1 January 2023
Additions
Depreciation charge for the period
Disposals Net Book Value
Impairment
Net Carrying value at 31 December 2023
Net Carrying value at 1 January 2022
Additions
Depreciation charge for the period
Net Carrying value at 31 December 2022
76
Surface Transforms PlcFinancial Statements Amounts Recognised in the Income Statement
Interest on Lease liabilities
Lease Liabilities
Current
Non-Current
Total Lease Liabilities
Total Cash outflow for leases
Within 1 year
Greater than one year but less than five years
Greater than five years but less than ten years
Greater than ten years but less than fifteen years
Total Lease Liabilities
December
2023
£’000
December
2022
£’000
129
99
December
2023
£’000
December
2022
£’000
357
1,429
1,786
295
1,335
1,630
December
2023
£’000
December
2022
£’000
454
276
December
2023
£’000
December
2022
£’000
475
1,145
597
–
222
655
1,085
–
2,217
1,962
24 Capital Committments
Contracts placed for future capital expenditure as at 31 December 2023 were £1,406k (2022; £5,791k)
25 Ultimate controlling party
The Directors do not consider there to be an ultimate controlling party due to no individual party owning a
majority share in the Company.
77
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
26 Loss per ordinary share
The calculation of basic loss per ordinary share is based on the loss for the financial year divided by the weighted
average number of shares in issue during the year.
Losses and number of shares used in the calculation of loss per ordinary share are set out below.
Basic
Loss after tax (£)
2023
2022
(Restated)
2022
(As Reported)
(19,558,869)
(5,266,295)
(4,780,363)
Weighted average number of shares (No. of shares)
247,044,609 204,340,456 204,340,456
Loss per share (pence)
(7.92p)
(2.58p)
(2.34p)
The calculation of diluted loss per ordinary share is identical to that used for the basic loss per ordinary share.
This is because the exercise of options would have the effect of reducing the loss per ordinary share from
continuing operations and is therefore anti-dilutive under the terms of IAS 33.
Share based payments
The fair value of options granted is measured using the Black-Scholes option pricing model, taking into account
the terms and conditions upon which the options were granted. Exercise is assumed to occur 3 years from the
date of grant and historically there has been no early exercise of options and so this has been ignored.
The fair value uses the weighted average share price and a risk free rate of return of 2.0%.
Due to Company’s current state of growth no dividends have been included in any calculations however this is
reviewed annually by the board.
78
Surface Transforms PlcFinancial Statements Share options
27
There is a total of 3,668,825 unexpired options held by employees and a total of 4,200,000 unexpired options
held by Directors. The number of options outstanding under the Company’s share option scheme is as follows:
Note
E1
E1
U1.0
E1
U1.1
E1
E1
U1.0
E2
E1
E3
E2
E5
E4
E6
E4
E7
At 31 December
2022
Leaver
Exercised
At 31 December
2023
Exercise price
Date from
which
exercisable
Expiry date
300,000
(300,000)
125,000
(125,000)
250,000
1,331,667
450,000
1,815,753
–
–
–
–
–
–
–
–
–
£0.1050
25/09/2017
25/09/2024
£0.1450
30/09/2018
30/09/2025
250,000
£0.1550
02/10/2018
02/10/2025
(1,010,000)
321,667
£0.1525
04/01/2018
04/01/2028
–
450,000
£0.1525
04/01/2018
04/01/2028
(40,000)
1,775,753
£0.2050
04/07/2018
19/09/2027
265,000
(20,000)
1,910,000
–
–
–
245,000
£0.1300
05/12/2019
05/12/2029
1,910,000
£0.1300
05/12/2019
05/12/2029
140,000
(70,000)
(70,000)
–
£0.1525
28/03/2019
28/03/2029
360,000
210,000
120,000
210,000
40,000
–
–
–
–
–
1,110,105
(463,700)
520,000
910,000
(20,000)
(80,000)
–
–
–
–
–
–
–
–
360,000
£0.2350
04/12/2021
04/12/2029
210,000
£0.2600
28/01/2020
28/01/2030
120,000
£0.4600
20/10/2020
20/10/2030
210,000
£0.5000
23/02/2021
23/02/2031
40,000
£0.5000
23/02/2021
23/02/2031
646,405
£0.5700
10/11/2021
10/11/2031
500,000
£0.5700
10/11/2021
10/11/2031
830,000
£0.0500
12/07/2022
12/07/2032
Total
10,067,525
(1,078,700)
(1,120,000)
7,868,825
EMI approved scheme
All the options below have been granted under the EMI approved scheme. The options under E2, E3, E5, E6 and
E7 below vest on the achievement of specific performance criteria relating to contract awards, cost targets
and revenue levels.
E1
E2
There have been no variations to the terms and conditions, or performance criteria attached to these
share options during the financial year. There are no performance conditions attached to the options
issued other than continued employment by the Company.
These options have been granted under the approved scheme. These options have been granted under
the EMI approved scheme. There have been no variations to the terms and conditions, or performance
criteria attached to these share options during the financial year. For these options there are
performance criteria relating cost and production targets.
79
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
27
E3
Share options continued
There have been no variations to the terms and conditions, or performance criteria attached to
these share options during the financial year. For these options there are three performance criteria:
Production cell OEM1 meeting certain production criteria, the company achieving a certain target cost
for the manufacture of a carbon ceramic disc and the delivery of £5m of revenue in a financial year.
E4
E5
E6
E7
There are no performance conditions attached to the options issued other than continuous employment
by the Company for a period of 2 years and continuing employment.
There have been no variations to the terms and conditions, or performance criteria attached to
these share options during the financial year. For these options there are three performance criteria:
Achievement of staffing requirements for start of OEM production, ongoing staff turnover levels below
industry average in a 3 year period and the delivery of £5m of revenue in a financial year.
There have been no variations to the terms and conditions, or performance criteria attached to these
share options during the financial year. For these options there are three performance criteria: Achieving a
minimum of £20m of sales in a rolling twelve-month period, achieving a minimum of £5m profit before tax in
a rolling twelve-month period and installing capacity capable of achieving annual sales of at least £60m.
There have been no variations to the terms and conditions, or performance criteria attached to these
share options during the financial year. For these options there are three performance criteria: Achieving a
minimum of £20m of sales in a rolling twelve-month period, achieving a minimum of £5m profit before tax in
a rolling twelve-month period and installing capacity capable of achieving annual sales of at least £80m.
Unapproved scheme
All the options below have been granted under the unapproved scheme. The options under U1.1 below vest on
the achievement of specific performance criteria relating to contract awards and revenue levels.
U1.0
There have been no variations to the terms and conditions, or performance criteria attached to these
share options during the financial year. There are no performance conditions attached to the options
issued other than continued employment by the Company.
U1.1
There have been no variations to the terms and conditions, or performance criteria attached to these
share options during the financial year. For these options there are three performance criteria: The
nomination of a track car, a nomination by a mainstream OEM for a production vehicle and/or the delivery
of £5m of revenue in a financial year.
28 Government grants
Government grants on the statement of financial position at the year end relate to grants received for capital
equipment for use in production. These grants are to be amortised over the life of the equipment to which they
relate. During the year to December 2023 the Company recognised £13k of income against the furnaces which
have entered production.
29 Post reporting date events
Following the period end, the Company contractually completed lease ownership of additional property
adjacent to the existing factory. The estimated impact on amortisation expense for the acquired property is
expected to be £63,000 annually. The impact on other financial categories is not material.
80
Surface Transforms PlcFinancial Statements Financial Statements
30 Prior Year Restatement
This note describes a restatement of prior year revenue related to system integration services (engineering,
testing, and tooling). Previously, revenue had been recognised by a careful assessment of these services over
time based on the stage of completion for each contract, using detailed project information. This approach which
aimed to reflect a fair representation of revenue earned, aligned with management’s previous interpretation
of IFRS 15. However, since we have been unable to adequately evidence the right to payment for incomplete
performance obligations, the criteria for recognising revenue has been revised to only recognise revenue at a
point in time being either upon completion of system integration by the OEM or when control is passed over for
the contracted services. To ensure our financial statements comply with this revised interpretation, we have
corrected the error in prior year revenue for related to these services.
Based on this new interpretation the error in prior year revenue related to these services amounts to a cumulative
decrease of £1.4million, with £1.1m impacting 2022 and £0.3m impacting 2021.
The restatement of prior year revenue for system integration services has resulted in a £1.07 million reduction in
2022 revenue. In reversing the revenue this adjusts the unbilled receivables balance within Other Receivables,
as the revenue cannot be recognised yet, the costs associated with these contracts are removed from the
statement of total comprehensive income and shown as contract fulfilment assets on the face of the statement
of financial position until such time that control is transferred to the customer and revenue can be recognised.
The financial statements reflect a change in presenting the tax credit on the SFP and in note 14. Previously
included in “Other Receivables,” the tax credit (FY22 £1,206) is now a separate line item for improved clarity
(operating vs. other receivables). This change is applied retrospectively, restating prior period amounts in the
SFP and note 14. This change is classified as an error correction under IAS 8. We believe previously the balance
was not separately presented in accordance with the requirements of IAS 1. IAS 8.49(a).
The impact of these restatements are shown in the tables below.
Loss per ordinary share IAS 8.49 (b)
Basic
Loss after tax (£)
2022
(As Reported)
Prior Year
Adjustment
2022
(Restated)
(4,780,363)
(485,932)
(5,266,295)
Weighted average number of shares (No. of shares)
204,340,456
– 204,340,456
Loss per share (pence)
(2.34p)
(0.24p)
(2.58p)
T
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a
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81
Annual Report and Financial Statements
Notes to the Financial Statements continued
30 Prior Year Restatement continued
Statement of Total Comprehensive Income
Revenue
Cost of Sales
Gross Profit
Gross profit after other income
Operating loss before exceptional items
Operating loss after exceptional items
Loss before tax
Taxation
Loss for the year after tax
Total comprehensive loss for the year attributable to members
Statement of Cash Flows
Cash flow from operating activities
Loss after tax for the year
Changes in working capital
Decrease/(increase) in inventories
Decrease/(increase) in trade and other receivables
Decrease/(increase) in Contract Fulfillment Asset
Increase/(decrease) in trade and other payables
Net (decrease)/increase in cash and cash equivalents
2022
(As Reported)
£’000
Prior Year
adjustment
£’000
2022
(Restated)
£’000
5,121
(1,077)
(2,039)
3,083
3,119
(5,871)
(5,871)
(6,045)
1,264
(4,781)
(4,781)
591
(486)
(486)
(486)
(486)
(486)
–
(486)
(486)
4,045
(1,448)
2,597
2,633
(6,357)
(6,357)
(6,531)
1,264
(5,267)
(5,267)
2022
(As Reported)
£’000
Prior Year
adjustment
£’000
2022
(Restated)
£’000
(4,781)
(486)
(5,267)
(2,038)
(1,805)
–
1,720
(7,167)
4,621
–
831
(693)
348
–
–
(2,038)
(974)
(693)
2,068
(7,167)
4,621
Under the revised interpretation, revenue for the year end 2021 has also been adjusted down by £0.35m, this
has been adjusted on the balance sheet. To ensure consistency across the financial statements, the net assets
on the balance sheet have been retrospectively adjusted by £0.74 million for both 2022 and 2021. This ensures
the 2022 carried-forward net assets reflect all historical corrections.
82
Surface Transforms PlcFinancial Statements
Financial Statements
Statement of Financial Position
Current assets
Inventories
Trade receivables
Other Receivables
Tax receivable
Contract Fulfillment Asset
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Total liabilities
Net assets
Equity
Retained loss
Total equity attributable to equity shareholders of the company
2022
(As Reported)
£’000
Prior Year
adjustment
£’000
2022
(Restated)
£’000
3,376
1,051
3,401
–
–
14,924
22,752
40,177
(3,710)
(4,216)
(6,626)
33,551
(27,534)
33,551
–
–
(919)
1,206
693
–
(226)
(226)
(510)
(510)
(510)
(736)
(736)
(736)
3,376
1,051
1,276
1,206
693
14,924
22,526
39,951
(4,220)
(4,726)
(7,136)
32,815
(28,270)
32,815
T
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83
Annual Report and Financial Statements
Notice of Annual General Meeting
NOTICE IS GIVEN that the annual general meeting
(the AGM) of Surface Transforms PLC will be held
at 1 Paternoster Square, London EC4M 7DX 23 July
2024 at 11 am to consider, and if thought fit pass, the
following resolutions, of which 1 to 5 (inclusive) will
be proposed as ordinary resolutions and 6 will be
proposed as a special resolution.
Ordinary Resolutions
1.
To receive the company’s annual reports
and accounts for the financial year ended
31 December 2023.
2.
3.
4.
5.
To re-appoint Grant Thornton UK LLP as auditors of
the Company to hold office from the conclusion of
this meeting until the conclusion of the next annual
general meeting of the Company and to authorise
the Directors to fix their remuneration.
To re-elect Julia Woodhouse, who retires by
rotation under article 118 of the Company’s
articles of association and who, being eligible,
offers herself for re-election as a director.
To re-elect Isabelle Maddock, who was appointed
during the year and retires under article 118 of
the Company’s articles of association and who,
being eligible, offers herself for re-election as
a director.
That in substitution for all existing and
unexercised authorities and powers, the
directors of the Company be generally and
unconditionally authorised for the purpose of
section 551 Companies Act 2006 (the Act):
5.1
to exercise all or any of the powers of the
Company to allot shares of the Company or
to grant rights to subscribe for, or to convert
any security into, shares of the Company
(those shares and rights being together
referred to as Relevant Securities) up to a
total nominal value of £4,340,242.12 to those
persons at the times and generally on the
terms and conditions as the directors may
determine (subject always to the articles of
association of the Company); and further
5.2 to allot equity securities (as defined in
section 560 of the Act) up to a total nominal
value of £4,340,242.12 (that amount to be
reduced by the nominal value of any Relevant
Securities allotted under the authority in
paragraph 5.1 above) in connection with
a rights issue or similar offer in favour of
ordinary shareholders where the equity
securities respectively attributable to the
interest of all ordinary shareholders are
proportionate (as nearly as may be) to the
respective numbers of ordinary shares held
by them subject only to those exclusions or
other arrangements as the directors of the
Company may consider appropriate to deal
with fractional entitlements or legal and
practical difficulties under the laws of, or the
requirements of any recognised regulatory
body in any, territory,
PROVIDED THAT this authority shall, unless
previously renewed, varied or revoked by the
Company in general meeting, expire at the
conclusion of the next annual general meeting
or on the date which is six months after the next
accounting reference date of the Company (if
earlier) save that the directors of the Company
may, before the expiry of that period, make
an offer or agreement which would or might
require relevant securities or equity securities
(as the case may be) to be allotted after the
expiry of that period and the directors of the
Company may allot relevant securities or equity
securities (as the case may be) under that offer
or agreement as if the authority conferred by this
resolution had not expired.
Special Resolution
6.
That if resolution 5 above is passed, the directors
of the Company be authorised to allot equity
securities (as defined in section 560 of the
Act) for cash under the authority given by that
resolution 5 and/or to sell ordinary shares held
by the Company as treasury shares for cash
as if section 561 of the Act did not apply to that
allotment or sale, the authority to be limited to:
84
Surface Transforms PlcShareholder Information
6.1
the allotment of equity securities or sale
of treasury shares in connection with a
rights issue or similar offer in favour of
ordinary shareholders where the equity
securities respectively attributable to the
interests of all ordinary shareholders are
proportionate (as nearly as may be) to the
respective numbers of ordinary shares held
by them subject only to those exclusions or
other arrangements as the directors of the
Company may consider appropriate to deal
with fractional entitlements or legal and
practical difficulties under the laws of, or the
requirements of any recognised regulatory
body in any, territory; and
6.2 the allotment of equity securities or sale
of treasury shares (otherwise than under
paragraph 6.1 above) up to a total nominal
amount of £1,302,073, representing
approximately 10% of the current share
capital of the Company,
that authority to expire at the end of the next
annual general meeting of the Company (or, if
earlier, at the close of business on the date which
is 6 months after the next accounting reference
Notes:
1.
2.
A member of the Company entitled to attend and vote
at the meeting convened by this notice is entitled to
appoint one or more proxies to exercise any of his or
her rights to attend, speak and vote at that meeting
on his or her behalf. If a member appoints more than
one proxy, each proxy must be entitled to exercise the
rights attached to different shares. A proxy need not
be a member of the Company.
A proxy may only be appointed using the procedures
in these notes. To be effective, the proxy vote must
be submitted at www.signalshares.com so as to have
been received by the Company’s registrars not less
than 48 hours (excluding weekends and public holidays)
before the time appointed for the meeting or any
adjournment of it. By registering on the Signal Shares
portal at www.signalshares.com, you can manage
your shareholding, including:
• cast your vote
• change your dividend payment instruction
• update your address
• select your communication preference.
date of the Company) but, in each case, before its
expiry the Company may make offers, and enter
into agreements, which would, or might, require
equity securities to be allotted (and treasury
shares to be sold) after the authority expires and
the directors of the Company may allot equity
securities (and sell treasury shares) under any
such offer or agreement as if the authority had
not expired.
By Order of the Board
Richard Hattersley
Secretary
Date: 27 June 2024
Registered office:
Image Business Park
Acornfield Road
Liverpool
L33 7UF
3.
Alternatively, you can vote via the LinkVote+ app, a free
app for smartphone and tablet provided by Link Group
(the company’s registrar). It offers shareholders the
option to submit a proxy appointment quickly and easily
online, as well as real-time access to their shareholding
records. The app is available to download on both the
Apple App Store and Google Play, or by scanning the
relevant QR code below.
Apple App Store
GooglePlay
85
Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information
8.
9.
10.
11.
Unless otherwise indicated on the Form of Proxy,
CREST, Proxymity or any other electronic voting
instruction, the proxy will vote as they think fit or, at
their discretion, withhold from voting.
If you need help with voting online, or require a paper
proxy form, please contact our Registrar, Link Group
by email at shareholderenquiries@linkgroup.co.uk,
or you may call on 0371 664 0391. Calls are charged at
the standard geographic rate and will vary by provider.
Calls outside the United Kingdom will be charged at the
applicable international rate. Lines are open between
09:00 – 17:30, Monday to Friday excluding public
holidays in England and Wales.
Any corporation which is a member of the Company
may authorise one or more persons (who need not
be a member of the Company) to attend, speak and
vote at the meeting as the representative of that
corporation. A certified copy of the board resolution
of the corporation appointing the relevant person as
the representative of that corporation in connection
with the meeting must be deposited at the office of the
Company’s Registrars before the commencement of
the meeting.
The right to vote at the meeting shall be determined by
reference to the register of members of the company.
Only those persons whose names are entered on the
register of members of the Company at 6pm on 19 July
2024 shall be entitled to attend and vote for the number
of shares registered in their names at that time.
Changes to entries on the register of members after
that time shall be disregarded in determining the rights
of any person to attend and/or vote at the meeting.
Notice of Annual General Meeting continued
4.
5.
6.
7.
Any power of attorney or other authority under
which the proxy is submitted must be returned to
the Company’s Registrars, Link Group, PXS1, Central
Square, 29 Wellington Street, Leeds, LS1 4DL. If a
paper form of proxy is requested from the registrar, it
should be completed and returned to Link Group, PXS1,
Central Square, 29 Wellington Street, Leeds, LS1 4DL
to be received not less than 48 hours before the time of
the meeting.
In order to revoke a proxy appointment, a member
must sign and date a notice clearly stating his or her
intention to revoke his or her proxy appointment and
deposit it at the office of the Company’s Registrars,
Link Group at PXS1, Central Square, 29 Wellington
Street, Leeds LS1 4DL by 11am 19 July 2024.
CREST members who wish to appoint a proxy or proxies
by utilising the CREST electronic proxy appointment
service may do so in relation to the meeting, and
any adjournment(s) of that meeting, by utilising the
procedures described in the CREST Manual. In order
for a proxy appointment made by means of CREST to
be valid, the appropriate CREST message must be
transmitted so as to be received by the Company’s
registrars, Link Group (whose CREST Participation
ID is RA10) at PXS 1, Central Square, 29 Wellington
Street, Leeds LS1 4DL by the latest time for receipt
of proxy appointments specified in note 2 above. For
this purpose, the time of receipt will be taken to be the
time (as determined by the timestamp applied to the
message by the CREST Applications Host) from which
the Company’s agent is able to retrieve the message
by enquiry to CREST in the manner prescribed.
The Company may treat as invalid a CREST Proxy
Instruction in the circumstances in Regulation 35(5)(a)
of the Uncertificated Securities Regulations 2001.
Proxymity Voting – if you are an institutional investor
you may also be able to appoint a proxy electronically
via the Proxymity platform, a process which has been
agreed by the Company and approved by the Registrar.
For further information regarding Proxymity, please
go to www.proxymity.io. Your proxy must be lodged
by 11am 19 July 2024 in order to be considered valid
or, if the meeting is adjourned, by the time which is 48
hours before the time of the adjourned meeting. Before
you can appoint a proxy via this process you will need
to have agreed to Proxymity’s associated terms and
conditions. It is important that you read these carefully
as you will be bound by them and they will govern the
electronic appointment of your proxy. An electronic
proxy appointment via the Proxymity platform may
be revoked completely by sending an authenticated
message via the platform instructing the removal of
your proxy vote.
86
Surface Transforms PlcShareholder Information Company Information and Advisers
Website
www.surfacetransforms.com
Registered Number
03769702
Directors
David George Bundred (Non-executive Chairman)
Dr Kevin Johnson (Chief Executive)
Matthew Taylor (NED and Senior Independent Director)
Julia Woodhouse (Non-executive Director)
Ian Cleminson (Non-executive Director)
Isabelle Maddock (Chief Financial Officer)
Company Secretary
Richard Hattersley
Address
Nominated Adviser and Joint Broker
Joint Broker
Auditors
Solicitors to the Company
Bankers
Registrars
Image Business Park
Acornfield Road
Liverpool
L33 7UF
Tel: 0151 356 2141
Zeus Capital Ltd
125 Old Broad Street
London
EC2N 3AR
Cavendish Capital Markets Limited
One Bartholomew Close
London
EC1A 7BL
Grant Thornton UK LLP
Royal Liver Building
Liverpool
L3 1PS
Gateley Plc
Ship Canal House
98 King Street
Manchester
M3 4WU
NatWest
2nd Floor,
1 Spinningfields Sq
Manchester
M3 3AP
Link Group
Central Square
29 Wellington Street
Leeds
LS1 4DL
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Annual Report and Financial StatementsThe Strategic ReportGovernanceFinancial StatementsShareholder Information
For your Notes
88
Surface Transforms PlcShareholder Information Surface Transforms Plc
Image Business Park
Acornfield Road
Liverpool L33 7UF
Tel: 0151 356 2141