Surface Transforms (SCE) H2 2023 earnings summary

Executive summary

• Revenue increased 81% year-over-year to £7.3m, driven by growth in OEM contracts and a change in revenue recognition criteria.

• Operational challenges, including capacity constraints and high scrap rates, limited the ability to meet demand, resulting in significant losses and the need for additional funding.

• The order book grew by £100m to £390m lifetime value, with five contracts now in multi-year revenue generation phase.

• Senior management changes included a new CFO and COO, and the Chairman announced his retirement post year-end.

Financial highlights

• Gross margin declined to 57% (from 64%) due to higher temporary outsourcing.

• Net research costs rose to £9.7m (2022: £5.6m), reflecting increased process development spend.

• Non-cash impairment charges totaled £9.2m (£3.0m tangible, £6.2m intangible assets).

• Loss after tax was £19.6m (2022 restated: £5.3m); loss per share was 7.92p (2022 restated: 2.58p).

• Cash used in operations was £10.3m; year-end cash balance was £6.1m (2022: £14.9m).

Outlook and guidance

• 2024 and 2025 financial expectations remain at the lower end of previous guidance, with H1 2024 focused on consolidation and H2 expected to see growth as capacity comes online.

• Ambition to reach £100m annual revenue within five years, with capacity expansion plans to £150m sales.

• Material uncertainty remains over going concern due to scale-up risks and cash headroom.