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

Good morning, everybody, and welcome to webcast from SRT Marine Systems. I'm Simon Tucker, the CEO. Those of you who've watched us before will know that certain rules apply. So I'm not going to make anybody inside, and I obviously have to protect some of the confidentiality of our customers and our commercial situation. So you have seen the announcement. We have successfully raised GBP 2.8 million. It's a combination of equity and loan. On the loan side, this was arranged under our loan note program with LGB. We've raised GBP 1 million. And on the equity side, with our broker FinnCap, we raised GBP 1.5 million. And with primary bid, which enabled us to spread that offer to the retail market, a further GBP 300,000. So I'm very happy with that outcome given the peculiar and extraordinary situation that the country currently -- the world, in fact, currently finds itself in. Additionally, we're also talking to our bank, Barclays, about a top-up loan using the government scheme. Those of you that know banks know that what is presented is often quite different to what actually happens. And so that's why we've been cautious about what we've said about what we will get from them. But we expect a nice top-up from that. What that does and the planning for that is give SRT's balance sheet a lot of cash and that enables us to sustain a significant delay caused by COVID-19. In addition to that, on the other side, we've also done some cost reduction, which we implemented immediately. The first thing that we've done for the safety of our staff is nearly 95% of our staff are now working from home. We've been able to do that because we invested last year in a cloud-based IT system. And so we continue to develop our [indiscernible] platform. We continue to do all the testing. We continue to accept orders, process orders. We continue to support new customers and existing customers all remotely. And actually, we're learning quite a lot about the flexibility that this -- our new cloud system provides. So sales and marketing travel has obviously stopped. The support on our customers' field support, traveling there has stopped. We've stopped external R&D development projects. So for example, when you're developing a transponder, you will spend capital expenditure on plastics and tooling. So for example, a single transponder, just our new [ B 900 ] might be GBP 0.5 million of external cost going to the toolmakers and external designers of the actual physical plastics, not the electronics and the software inside. So all of that stopped, and that's brought down our monthly overhead. Additionally, on our staff, SRT typically underpays our staff according to the industry norms, but we made that up through commissions and bonuses that are linked to personal targets. All of that has been stopped. So we've increased our cash pile, reduced our overheads and that puts us in a position where if the -- if -- depending on what the delays are, if they're up to 12 months, we are in a very solid position, and I think that sets us out from the crowd.

I think what I would also like to say in a little bit of detail just answering some of the questions that I've received on e-mail. I think one that I would like to thank those who supported the business up to where we are today and also in this current period of time. It shows the understanding that our shareholders have of our business and the robust position that we have and that this is just a moment in time and when we come out of all of this in a few months' time, that the business will be -- continue at an accelerated rate as everybody starts to try to catch up. While I'm talking about the financing, I want to talk about our prime bid offer. I know I've got a couple of e-mails where people are a little bit irritated that they missed out. Unfortunately, we're working in a regulated environment, and we were doing a placing. We were not doing a share offer, and there's a regulatory nuance between those things, whereas one needs a prospectus and one doesn't. And as a result of that, we needed to announce immediately after completing the documentation, which was all done on Monday at about 4:30. And if we were to do that, we needed to announce that prime bid was doing a further placing based on the RNS and that was done immediately after the announcement of that RNS, and it had to be a time-limited offer, whilst the market was closed. And so it wasn't ideal, and some of you missed out, and I apologize for that. But in our defense, we did everything we possibly could, more so than most public companies to widen that share offer. And the result was, we raised another GBP 300,000 from new and existing shareholders. So I am pleased that with that and in the future, we will encourage other companies that are needing to raise money to use prime bid. So I'm very pleased with the outcome. And financially, for our shareholders, for our employees and for our customers, this now places SRT in a very strong and comfortable financial position. So let's talk about the effects of this COVID-19 restrictions. So it affects us all. For us, it has resulted in -- on our projects business for those to be temporarily stopped. So if we look at Philippines, where we have a project to deliver the world's largest fisheries monitoring and management system, which is fully integrated, the installation process has stopped at the moment. We expect that to then recommence in May is the current guidance. Obviously, that may change. That may be extended by a few more weeks. The most recent extension was from the middle of April to the end of April. The good news there is we have procured all the equipment. It is all in our partner's warehouse in the Philippines. We have already started some of the installations. The central control centers and the data centers are up and running. Some of the boats have transponders on them. So we're in a really good position. All the CapEx is done on that project. It is now in installation. We also have a schedule of payments that are due to us. The last payment was due this month. The offices -- government offices are closed. We're now expecting that May, June time. We also then expect our discussions for follow-on projects in that country to carry on, and they are carrying on at the moment. But obviously, new tenders are not being floated for the minute. So it's not ideal. We would rather be doing all the installations right now. But for the moment, it is paused. In the Middle East, we have 3 contracts, which we knew prior to Christmas, we're now really complete and in their final contracting stages. And then we were advised in -- around February time that they were now ready to sign and that we were waiting for that to be diarized. Along came the COVID-19 restrictions, and they were stopped. The situation there is that in some of the countries, I can't even fly into them. If I could, I'd be quarantined for 14 days, not be able to fly out, and even if you could sign that nothing else -- nothing could progress. What's interesting is that -- and so in our planning, we've assumed that will stop for 6 months. Now actually, what's happening is those countries are now trying to figure out how can they progress these projects. These projects are considered to be a priority. A lot of them have discovered that by not controlling their coastal borders, [indiscernible] locked down in airport or a land border, but everybody is coming and going from the coast line. And so it's really highlighted that. And in all 3 countries, they are -- these particular projects are on their COVID-19 priority list, which -- personally, I'm surprised that it would be as highly as important as that. As a result of that, they're looking with us as to how can we start those projects now and sign in the not-too-distant future. And for those cynics watching this, the reason I'm saying not-too-distant future is I don't have a precise date. These are governments. And we're discussing with them how can the project be signed and started without our delivery team actually flying over there with equipment. And there are ways of doing that. So we can order server equipment, et cetera. We can instruct our local partners who we've been working with to build those up. We can deliver software, and they can start getting that functionality up and going. Some of the more complex integration would then have to follow. So it's a rearranging, if you will, of the secret events of a project, and we're working through that with those customers at the moment. I put up on the gallery a very small video actually which shows the seriousness with which this is being taken. And it was a conference call that I did last Tuesday with [indiscernible], which is a very close partner of ours. And all the -- and I'm not going to name them, but the senior -- the most senior decision-makers were in that room, and we were all discussing how can we rearrange that project so they can crack on with it now. So whilst for those 3 that are ready to go, there's a bit of a delay. Already, they're now starting to think, well, how can we adjust the project plans, so that they are -- if we sign, they can actually be implemented. So I wouldn't say life continues as normal at all, but things are progressing. On our transceiver side of our business, again, I put some pitches up to show business as normal. And what I mean by that is we are accepting orders. We are shipping orders. Our production continues. We expect to see some reduction in our production capacity in the next month or so. Why is that? If you can imagine in a factory, and this is in Ireland, they're configured for people to be sitting right next to each other doing the assembly. Obviously, with social spacing, they now need to space those people out. So you have less people in the assembly cells and therefore, your ability to produce the quantity in the space that you have reduces. We've started to see a catch-up on the China supply chains. So China went through its lockdowns during this year in January and February. Now they're catching up with that. So actually, we saw the tension in the supply chain -- component supply chain further earlier on. But because of our stock situation, we were able to carry on through that. And in fact, in our announcement that we made yesterday, I pointed out that our transceiver business grew 22% year-on-year. And so whilst I think you will see a little bit of softening of demand now, I think that we'll continue to see that growth pattern. What we're doing to keep that transceiver business going is we are -- we invested in a fully transactional website last year with em-trak, and we're now starting to see a lot more direct to inquiries as people with boats are sitting at home wondering what to do. We're doing more online marketing. And so we expect to see a sort of displacement of sales from dealers to direct sales. Interestingly, in the last week, what we've seen is from the initial hiatus of dealers having to close and therefore, well, now what do I do because I used to sell ropes and cleats, they're at home, thinking, well, I can actually sell to my customers online and also by phoning them up. And we've introduced a service where our dealers can order from us, and we will ship directly to their customer and bill the deal -- and bill the dealer with the dealer billing the customer. And that's working well. So we are on our transceivers business. We're still producing, receiving orders and shipping, but I can see that there will be a slight softening demand there's bound to be with what's going on at the moment. So in summary, our transceivers business continues. Our projects business, the existing projects and the near-term projects have been delayed by a month or 2. We have secured our financial situation, so we can sustain a delay significantly longer than that. We've rearranged our operating model so that we're continuing with our product development. We're continuing with our administration. We're continuing with our sales because there's a lot of new projects coming up. And in fact, there's a tender that popped out that we've been waiting for, popped out yesterday, which we weren't expecting for another 3 months. So if once something has happened a little bit earlier, I'm not going to mention a name, but that will become apparent for those of you who like googling. So we are carrying on in a very good situation. So I want to just try and look at some of the questions, [indiscernible] which if there's any one. So I encourage you to ask any questions if you're watching. I'm being asked that one of our projects, the smallest one of $8.5 million had previously been a larger amount? Yes. And that -- because that particular project incorporated a lot of hardware. That hardware has been provided under a -- not a grant aid, but another country nearby has provided some of those radars. And also what they've decided to do is to phase that system over 3 years. So instead of one contract for $25 million, $30 million, there will be a series of contracts over a period of 3 years. The first one, $8.5 million is to upgrade the core system from just being an AIS tracking system to being integrated with the radar and the CCTV systems that they have. The next phase after that will then be 2 remote coast guard monitoring systems and the one after that will then be further radars and cameras. So that value doesn't change, it's just spread over 3 years or so. So I think I've covered everything and covered everybody's questions who had e-mailed me. I encourage you during this difficult time if you've got any concerns about us, about what's going on with your company, then e-mail me. We are continuing as normal. And I will keep you updated as projects start to progress. And thank you again for the support from the shareholders both financially and morally in this tricky time. But I believe that the strength of SRT will show through in the coming weeks. Thank you very much.