Surface Transforms : Proposed Placing, Subscription and Open Offer

19 January 2021

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM THE UNITED STATES, AUSTRALIA, NEW ZEALAND, CANADA, JAPAN OR THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.

THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE OR CONTAIN ANY INVITATION, SOLICITATION, RECOMMENDATION, OFFER OR ADVICE TO ANY PERSON TO SUBSCRIBE FOR, OTHERWISE ACQUIRE OR DISPOSE OF ANY SECURITIES IN SURFACE TRANSFORMS PLC OR ANY OTHER ENTITY IN ANY JURISDICTION. NEITHER THIS ANNOUNCEMENT NOR THE FACT OF ITS DISTRIBUTION SHALL FORM THE BASIS OF, OR BE RELIED ON IN CONNECTION WITH, ANY INVESTMENT DECISION IN RESPECT OF SURFACE TRANSFORMS PLC.

THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED BY THE COMPANY TO CONSTITUTE INSIDE INFORMATION STIPULATED UNDER THE MARKET ABUSE REGULATION (EU) NO. 596/2014 ("MAR"). UPON THE PUBLICATION OF THIS ANNOUNCEMENT VIA THE REGULATORY INFORMATION SERVICE, THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

SURFACE TRANSFORMS PLC

("Surface Transforms" or the "Company")

Proposed conditional Placing to raise £17.9 million via an accelerated bookbuild,

Subscription to raise £0.1 million and

Open Offer to raise up to a further £2.0 million

Surface Transforms (AIM:SCE), manufacturers of carbon fibre reinforced ceramic automotive brake discs, is pleased to announce a proposed conditional Placing to raise £17.9 million (before expenses) at the Issue Price of 50 pence per Ordinary Share.

The net proceeds of the Placing will be used to fund the construction cost of OEM Production Cell Two, machinery improvements within OEM Production Cell One and for general working capital purposes, particularly needed should either or both of two potentially significant opportunities with the "carry over" of parts onto new models with OEM 8 and a possible new customer, OEM 9, award supply contracts to the Company. OEM 9 is a new entrant to the EV market.

The Placing will be conducted by way of an accelerated Bookbuild which will be launched immediately following this Announcement, in accordance with the terms and conditions set out in the Appendix to this Announcement.

KEY HIGHLIGHTS

• Proposed Placing of up to £17.9 million (before expenses) with institutional investors, proposed Subscription of £0.1 million by certain of the Directors (before expenses) and proposed Open Offer of up to £2.0 million (before expenses) with existing Shareholders, in each case at the Issue Price.
• The Company intends to use the net proceeds of the proposed Placing and Subscription to build a second OEM Production Cell at Knowsley, together with some other capital expenditure improvements to the existing OEM Production Cell One and for general working capital purposes, particularly needed should either or both of two potentially

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significant opportunities with the "carry over" of parts onto new models with OEM 8 and a possible new customer, OEM 9, award supply contracts to the Company. OEM 9 is a new entrant to the EV market.

• Any monies received under the Open Offer will be used to further support the Company's strategy and general working capital purposes.
• The Issue Price represents a represents a discount of approximately 11% per cent. to the volume weighted average price of 56.3263 pence per Ordinary Share for the period from 5 to 19 January 2021 being the period following the Company's last Trading Update to the date of this Announcement.
• Zeus Capital is acting as Nominated Adviser and Joint Bookrunner and finnCap is acting as Joint Bookrunner in connection with the Placing.
• Completion of the Fundraising is subject to, inter alia, Shareholder approval which will be sought at a General Meeting of the Company, expected to be held at 10:00 a.m. on 8 February 2021.

The timing for the close of the Bookbuild and allocation of the Placing Shares shall be at the absolute discretion of the Joint Bookrunners, in consultation with the Company. The final number of Placing Shares to be issued pursuant to the Placing will be agreed by the Joint Brokers and the Company at the close of the Bookbuild. The result of the Placing will be announced as soon as practicable thereafter. The Placing is not underwritten.

In addition, certain of the Directors have indicated an intention to participate in the Fundraising (by way of a direct Subscription for new Ordinary Shares) as follows:

Director	Intended Subscription	Number of Subscription Shares
David Bundred	£25,000	50,000
Richard Gledhill	£100,000	200,000

In addition to the Placing and Subscription, the Company intends to provide all Qualifying Shareholders with the opportunity to subscribe for an aggregate of up to 4,000,000 Open Offer Shares at the Issue Price of 50 pence per Open Offer Share to raise up to approximately £2.0 million (before expenses). Shareholders subscribing for their full entitlement under the Open Offer may also request additional Open Offer Shares through an excess application facility. The Open Offer is not underwritten.

The issue of the Placing Shares, the Subscription Shares and the Open Offer Shares are conditional, inter alia, on the passing by Shareholders of the Resolutions at the General Meeting of the Company, expected to be held at 10:00 a.m. on 8 February 2021.

A circular containing further details of the Placing, the Subscription and the Open Offer, notice of General Meeting, proxy form and Open Offer Application Form will be despatched to Shareholders following announcement of the result of the Placing and Subscription and will thereafter be available on the Company's website at www.surfacetransforms.com.

Pursuant to the Stay at Home Order introduced by the UK Government on 6 January 2021 to manage the Covid-19 virus (coronavirus), public gatherings of more than two people and non- essential travel are currently prohibited. The Company will therefore convene the General Meeting with the minimum quorum of two shareholders necessary to conduct the meeting, being the Company's Chief Executive, Kevin Johnson (acting as Chairman) and the Company's Finance

Director, Michael Cunningham. All other Shareholders must not seek to attend the General Meeting in person.

Applications will be made to the London Stock Exchange for the admission of the Placing Shares, Subscription Shares and Open Offer Shares to be admitted to trading on AIM. First Admission of the EIS/VCT Qualifying Placing Shares is expected to commence at 8:00 a.m. on 9 February 2021 and Second Admission of the Placing Shares (excluding the EIS/VCT Placing Shares), the Subscription Shares and the Open Offer Shares is expected to commence at 8:00 a.m. on 10 February 2021.

The New Ordinary Shares, when issued, will be fully paid and will rank pari passu in all respects with the Existing Ordinary Shares.

The Appendix to this Announcement (which forms part of this Announcement) contains the detailed terms and conditions of the Placing.

David Bundred, Non‐Executive Chairman of Surface Transforms, commented:

"This funding will enable the Company to move to the next stage of its development ‐ the building of OEM Production Cell Two will provide revenue capacity of £35 million at Knowsley from 2022, and enabling us to fulfil contracts we are confident of being awarded in the near future."

Kevin Johnson, Chief Executive Officer of Surface Transforms, added:

"This decision to invest ahead of contract award reflects both our confidence in the strength of our pipeline - and our realisation that the new disruptive OEMs operate to different timescales than our other customers. The automotive industry is changing with electric vehicles central to this, and we are delighted to be a part of it."

For further information, please contact:
Surface Transforms plc	[phone]
David Bundred, Chairman
Kevin Johnson, CEO
Michael Cunningham, CFO
Zeus Capital Limited (Nominated Adviser and Joint Broker)	[phone]
David Foreman / Dan Bate / Jordan Warburton (Corporate Finance)
Dominic King (Corporate Broking)
finnCap Ltd (Joint Broker)	[phone]
Ed Frisby / Giles Rolls (Corporate Finance)
Richard Chambers (ECM)

The person responsible for arranging the release of this Announcement on behalf of the Company is Michael Cunningham, Finance Director.

Introduction to the Fundraise

Surface Transforms announces that it proposes to raise £17.9 million by means of a conditional Placing of 35,750,000 Placing Shares at the Issue Price of 50 pence per Ordinary Share. In addition, the Company proposes to raise £0.1 million by way of a Subscription by certain of the Directors and up to £2.0 million by way of an Open Offer.

The Fundraising is conditional on, inter alia, the passing of the Resolutions and admission of the Placing Shares, Subscription Shares and Open Offer Shares to trading on AIM.

Automotive market drivers

There are compelling drivers for the increasing adoption of carbon ceramic brakes, with the likes of AMG, Aston Martin, Audi, Bentley, BMW, General Motors, Corvette, Ferrari, Jaguar, Land Rover, Lamborghini, Koenigsegg, McLaren, Nissan, Porsche and VW now offering carbon ceramic brakes on selected vehicles.

The drivers for adoption of carbon ceramic brakes are multi-faceted and include:

• Technological: carbon ceramic discs provide superior braking performance than iron discs being both stronger and more durable as well as being able to dissipate more heat - increased heat evacuation reduces the brake temperature which improves performance. In addition, carbon ceramic discs can be up to 70 per cent. lighter - in certain instances each carbon ceramic brake disc being 25 kg lighter resulting in a total chassis weight reduction of 100 kg;
• Environmental: reduced chassis weight results in lower CO2 emissions. In addition, carbon ceramic discs produce significantly less brake pad dust pollution than iron discs;
• Competition: SGL Brembo are currently the leading carbon ceramic brake disc manufacturer by volume with a near monopolistic position. Automotive OEMs desire de- risked supply arrangements wherever possible. The Board consider Surface Transforms to be the only credible alternative supplier of carbon ceramic brakes to SGL Brembo;
• Lifetime and total cost of ownership: Carbon ceramic discs last approximately four times longer than iron discs. This increased service life therefore has a commensurate reduction in the total cost of ownership;
• Quality: Carbon ceramic discs provide enhanced handling, comfort and performance compared with heavier iron discs; and
• Aesthetics: Carbon ceramic discs are desirable, especially when combined with colourful calipers, and because they do not corrode like iron discs, they generate significantly less brake dust resulting in cleaner wheels.

The EV market is becoming more prominent in the wider automotive space, led by stringent rules in the EU, California and Japan to reduce carbon emissions. In addition to the above, weight saving on EVs can mean smaller, cheaper batteries - the main expense for EVs - can be used, or that their range is increased.

Knowsley revenue capacity and capacity planning