SRT Marine Systems plc (SRT) Earnings Call Transcript & Summary

Good morning, everybody. Welcome to another webcast from me, Simon Tucker, CEO of SRT. When I spoke to you a few weeks ago, I didn't expect to be sitting here today to apologize for missing our numbers forecast for this financial year. I rather expected that I would be sitting here but with some different news. But as it is turned out, this is going to be delayed by perhaps a few weeks and then into next financial year. So I think today, I start with an apology to our shareholders, the angst that this has caused and also to the many people that work at SRT now, who probably know quite a bit more information than I'm able to reveal at this webcast and therefore perhaps share greater frustration than us all in that their work will not be seen on the stage as it will for a few weeks' time. So my sincere apologies for that. I was reflecting on that on the way here this morning. And a very wise man, who I have a lot of respect for and like very much who's a shareholder in SRT, asked me yesterday, why do we try to forecast 2 years in advance? What governments will do and when they'll do it? And I suppose in hindsight, he's making a good point, particularly, as he pointed out, when SRT is transforming from what is a small company into a large multinational, where we are gunning for these large contracts, and we've made great headway with a number of opportunities over the last few years to bring those to fruition and contract. Naturally until the contracts are signed, it's all talk. So let's talk about what happened that we announced yesterday. I expected to be sitting here, as I said, today or certainly this week financing contract signings and commencement of contracts. Over the weekend, we were advised by our customers in the Middle East, I'm not going to mention specific country names, that they had been instructed by their authorities, their masters, if you will, the ministries, to deploy all their people to protect and manage the borders. The result of that was, the advisers, they believe that there may be a delay. So as I sit here today, there are a couple of events coming up, which are currently still on the roster, and there may not be a significant delay. But when we put all the information together, and we considered this on Monday, I decided that in the light of all that information, the reality of slowdowns of being able to import equipment because people aren't there to inspect them at customs, our particular customers, having people out in the field on the board as opposed to enabling to give us access, the immediate access to sites, the ability to check what we have delivered and audited it really sum together to say it was just not a realistic proposition that, in particular, one case where we were expected to deliver 2 data centers, which are built and ready at Midsomer Norton right now and boxed up, ready to ship that we'd be able to deliver those in the 2-week contractual period. And it just was not realistic, and so I took the decision that we really should advise the market. And we do have a policy in SRT. We share all the written documentation and all the communication with our NOMAD, and we have an open discussion internally. And when we feel that there is -- minute that we feel that there is a significant -- potentially significant financial news, then we release that to the market. So over the weekend, we were advised of that by our customers. We were -- it was confirmed again to us that all the contract processes were complete, and it was waiting for the people that need to sign it to confirm the exact dates, which we expected this week or next week. But that it was likely to be a delay. So the result of that is that one milestone of one of the contracts that we were certain was going to be delivered this month is now likely to be moved to next month. And of course, the timing of that is poor because it falls over an accounting period, that being the end of the month. The good news within all of that, of course, is that we know that these contracts are proceeding. There are 3 of them in the Middle East, and they have a value of GBP 65 million. One of the questions that has come to me yesterday was a little bit of interest as to how does that 18 months look, how do these contracts look. So if I talk about these contracts individually, so contract A, which is the largest of them all, which requires a monitoring system and a bunch of transponders. I'm not using specific numbers because they're also watching this. I don't want to embarrass anybody. The monitoring system itself, which comprises of co-stations, data centers and operating consoles, that will be completed in 6 months. And those 3 components or 3 individual milestones, once they're completed and signed off, then we build that customer and they pay us. The transponders, of which there are quite a few thousand, then we have used those first 6 months to manufacture them. And then there's 12 months of installing those at quite a rate per month. And as you can imagine, that rate then builds up over that 12 months as the local partner becomes more skilled at doing it. While we're installing the monitoring centers, we're also then training up all the hundreds of installers that are required around the country in order to then start the installation when those transponders start to arrive. And we invoice that customer on a monthly basis according to the number of transponders completed at the end of the month. So it's a very simple and standard way of us -- way our contracts are structured. Contract B is just around the monitoring system. It's an upgrade to an existing system that we have supplied, and that'll enable that particular customer to integrate with new radars, surveillance cameras, communication in their command and control center. And then subsequent to that -- and that will take about 6 months to complete. And subsequent to that, there will be a next phase where they wish to have then 2 additional sub HQs, as they call them, with the same facility connected to the main control room. But that particular one will take about 6 months. And then the third one, which also where we have an existing contract, which is now being added to with a whole bunch of transceivers. We will complete the monitoring system where we've already shipped equipment, so we will bring that online and commission that. In the meantime, the transponders that are now being added to that contract will be manufactured. So the monitoring system will be finished in the first 6 months, probably a bit quicker than that, perhaps 4, 5 months. And then the transponders, which take about 6 to 7 months to manufacture, will then arrive in that particular country, and then we will start the installations. So the -- of course, it is bad news and extremely frustrating for everybody that this has been taken out of our hands and moved from this financial year to next financial year. But the day-to-day business does not change. The requirement for our systems remain there. And these projects that have been built up from a sparkle of an idea nearly 3 years ago into these contracts where they've gone through extensive processes, there's lots of legislation that's been brought in, all the preparation on the ground by the countries themselves and the contractual process and everything else, this is nothing -- one of the questions was, have they gone anywhere and all that sort of stuff? No, absolutely not. It is purely a deferral because they have more important things to do. And I think all of us -- whatever your opinion of the hype and stuff that perhaps is going on, it is causing pretty extraordinary measures, which is causing -- unfortunately, has caused us a delay in revenue for which I apologize.

So I'm just going to look at some of these questions here. So how are we getting on with the Philippines? Philippines is proceeding fine. We're happy with how that is going. As I've said to you many times, no contract is without its problems and challenges and hurdles. These are complicated projects, finding sites, fishing boats turning up on time, local documentation and things. But that's all normal stuff, and it's stuff that the years of experience that we've had and the depth of capability within our delivery team enables us to manage. And actually, as I've said in the past, it's one of the main reasons why I believe that SRT continues to make progress with the customers when the realization of how large and complicated these projects are to execute dorms on the customer. And they see our track record where we've actually done a project in Bahrain, Mexico, places like Somalia, South Africa, all around the world that they come to us. It's not just about the technology. So I don't have any more questions. I wanted to keep this short and sweet. So the message here is nothing has changed from our business standpoint. The contracts are -- we now know are done, all the processes are finished. We wait to -- for these entities to revert back to normal, which should hopefully be in a few weeks' time. But certainly, that will then enable us to do our deliveries at the beginning part of next year. And of course, that bodes well for next year. A question here of what about forecast for next year. Thinking about my very wise mentor, I think we'd just wait, get these signed. Because otherwise, the figures are pretty large, and I think I would prefer to put those out when I can also then add and they're contracted in paying and then we can move forward from there. So again, my apologies for the angst that's caused in the short term. And hopefully, I will be back here to talk to you with more positive news in the not-too-distant future. Thank you very much.