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

Good morning, everybody, from the Middle East. My name is Simon Tucker. I'm the CEO of SRT. Most of you will know that. So for those of you who've not seen a webcast, we do these unscripted webcasts every so often. I roughly try to do it every 3 months unless there's something pertinent. I'm not going to make anybody inside and the objective of this is to give you an update of what's going on. And this is particularly crystallized because, obviously, if there's a period of silence, I think from the outside, it may appear that there's not a lot going on and people get a bit concerned and what have you. So actually, the opposite is the case. And perhaps the market perception is not at all in line today with where the company is at and how we're performing. So let me start with an update on our transceivers division. So our transceivers division sells navigation safety transponders. These are fitted on to boats to stop them colliding with things, to enable social boating, communication between each other. And they're also fitted on to, what are called, aid to navigation, commonly called buoys of various types. And that's all part of a new age of digital navigation and everything talks to each other. And our job, and we've been doing this for 15 years now, is to develop the black boxes that go on all those things and enable this communication to happen. And just as a reminder, to date, we've manufactured and shipped approaching 500,000 of these, which is about 85%, 90% of the global market share. We have 4,500 dealers that are actively selling these around the world. And we sell through our own brand, which is em-trak. We sell through third-party brands through our OEM program where we provide product to people under their own brand. And we have our DAS initiative, which is where we sell directly to ports and waterways authorities, although that's relatively new. All of those are doing very well, and we've built that business up nicely and orders every day and our team at SRT and our logistics and our manufacturing and our sales and our support are doing that very well. The big new product that is coming up is NEXUS. And NEXUS is where we, for the first time, fuse data and voice communication into a single box. And also it links to the mobile phone and wearables. So rather than going down to your boat and picking up a CB Star radio, which is rather old-fashioned, I mean, a cracking conversation with somebody, your mobile phone or your smartwatch becomes the thing you can talk to other boats, you can talk to the coast guard, you can talk to the port authority with. You can see them on your mobile phone as well. And you can walk around the boat. You don't have to just stay where you are. And of course, when you're on the boat, most of the time, people are walking around and doing things and having a nice time. So you can now communicate from your watch a little bit like this. You've also got some neat features such as if some of the kids or one of the kids falls over and they have a smartwatch on, it can link back to NEXUS and immediately there, everybody gets a man overboard alert, and they can see where the person that's falling overboard is. And it will give the boat directions to get back there as quickly as possible amongst all the panic. It offers a private intercom system, so that people on the boat can all talk to each other. It's a really cool product. This has been in development for 2.5 years. It's a big from scratch product development, call the core technology. And that product, I'm pleased to say, has been in test for a little bit of time. It is now in preproduction at our production facility in Southern Ireland. And the first preproduction units have come off. And we're now going back -- going out for the second phase of final testing. As such, our dealers, we soft launched it last November to our 4,500 dealers at METS. And in November this year, in METS, we will start taking orders and we'll be shipping before the end of the year. We have been very cautious with this product because it's our first foray into voice communication, which is a much bigger market globally, both commercially and leisure than just the AIS transponders. So this is really a sort of catapult event for our transceivers division. It takes us into the app world of having real estate on people's phones, which, of course, offers great opportunity then to start licensing of additional functionality, navigation apps, all linked back to this black box that we will also then have on boats. So I'm very pleased with that. We have been cautious. We've been pretty hard on ourselves, and I apologize publicly to our project team for that to get this product right, so that when it comes to the market, it flies. So we've been very busy doing that. And November in METS in Amsterdam, orders will start being taken. We already have a forward order book, which is the first time ever we've had anything like that and then start shipping by the end of the year. Moving on to our systems business. A lot has been going on there. So today, where we are, the systems business delivers an integrated maritime surveillance system solution to sovereigns. So what is a sovereign, it would either be a fisheries authority or a coast guard. Both have an interest in trying to automatically detect and provide surveillance of their marine domain, which may be the territorial waters or the EEZ. Lots of things they're looking for from minor illegal behavior, safety issues through to national security issues of a major portion as we see that goes on in Asia Pacific and in the region where I am today in the Middle East. So -- and most countries really have very little today. We pioneered about 10 years ago the thought that air traffic control has an integrated surveillance system, should it make sense that the marine world has that. And that that ultimately migrates to include subsea surface and near surface, so drones, obviously, boats on the surface and then what's going on under the water. But we'll start with the surface. And what you need to do is to integrate multiple sensor systems, sensor types, data types, all into a single data set, apply clever analytics to detect who the bad guys are and then characterize what they are, so that the operators can make a decision as to what to do. They can ask their commanders permission to take that action, and they can dispatch the action all digitally, all within a digital system. And we are the first to develop that. It has been a long hard road to develop that. And we had our first contract hit actually in the Middle East with Bahrain in 2016, which was the first country to take a national view on that as an integrated system. So it's been a long, hard road to get to where we are. But today, we have, in our pipeline, about $1.5 billion worth of projects -- visible projects that we are actively in discussions with. And these are mostly countries starting on the road. There will be follow-on contracts, as they build up their systems, just the same as with air traffic control, just the same as any IT system with -- even in a company. But of that $1.5 billion, and there are some new ones that have recently joined, we've had some recent inquiries from different places that have added to that, but are as yet unquantified. As we sit today, there are 4 specific contracts with a total value of $420 million that we are focused on that are very near term. I just want to talk to you about those. Some of those you'll know about and perhaps be a little bit exasperated about. The first one is in Indonesia with the coast guard, our partners there Bakamla, which we signed last year. We signed the project contract last year in May 17, 2023. And there was an agreement or is an agreement between the U.K. government, UKEF, U.K. Export credit organization and the Indonesian Ministry of Finance for a specific loan to fund that project. And they agreed the terms of all of that in outline prior to the project agreement being signed. Obviously, you can't sign a project agreement unless, in principle, that's all been agreed. Since then, and it has been much longer than we expected, they have been negotiating those loan terms between 2 sovereign states. They've gone through government changes and what have you. And it has taken longer than we expected. The good news is all of that is now agreed and they're now in the final signing process, which suggests that in the very not-too-distant future, that will be signed and the project starts. So this is very good news. And from the outside, obviously, it appears that not much has been happening. We have used that time to do a lot of planning. It's a big project. It's a complicated project, involves a lot of training, a lot of concept of operations planning, procurement planning, a whole raft of different stuff, getting people up to speed in country, our project managers in country. So that is ready to go. And the first milestones start within weeks of that loan agreement actually being executed, which, as I said, is -- I'm not going to put a time on it, but it's very close. So then we move back to this region here in the Middle East. I'm not going to talk about specific countries. So there are 2 follow-on contracts with follow-on customers that are now in their final signing process. There is a lot of paperwork and process and checks and balances that go on. It's something that we're a passenger to and we've kind of got used to. It is frustrating. But on the other hand, we have long-term relationships with these customers, with long-term strategies to build up their maritime surveillance systems over the next 5, 10, 15, 20 years with a succession of projects. As they -- and each project, they build up, build on to the previous one. There is always the toing and froing as to exactly what the next project will entail so particularly in one, which is shortly to be signed. They weren't sure whether they wanted 1,000 transponders or 2,000 transponders, if they wanted 6 co-stations or 4 co-stations in this next Phase 2. And that takes time for them to work through, which is going to be in Phase 3 and Phase 4, et cetera. So once that's settled, then you move on to the actual finalizing of the documentation, which is submitted to their ministries for checking and then approval to sign. So we're really not far away from that, which is one of the reasons why I'm in the region. There is a second one, which is also a follow-on contract with another customer that has now had again gone through that similar process to what's included and how they're going to do things. And actually, I'm there tomorrow with them. And again, I think that we are about to start that very soon. And again, that time has given us time to do our planning. But I also think it's reflective of the seriousness that these countries are taking about their maritime surveillance and security. I often remind our team in the U.K., where we're buried in the core technology, how critical these systems are for these countries, that they rely on it for all their maritime security, maritime safety, maritime fisheries and things like that. And therefore, these aren't whimsical decisions. These aren't things that they just, oh, yes, we'll just buy a radar and put a GeoVS console in. It does take time for them to work that through. And it took us a little bit of time to realize that as a small company seeking to join the big time that, that is the nature of these big system contracts and these long-term relationships. And we have to stay the course to be able to get to that. And we've been able to do that because of the support of shareholders, and we have very strong support for that, which has enabled us to develop the technology, which does take years to develop, to develop a real project, a real system rather than just an app for that and at the same time, to develop the relationships -- the deep relationships you have to have with the customer and that mutual trust so that you have that interactive discussion as to how they're going to develop their maritime systems. The third one here is something that I've mentioned last year is a new project with a new customer that we've been quite taken about the pace that it's gone. The value of that contract is just over USD 200 million. And this seems to be progressing extremely quickly after some changes in their administration. And it looks like we are a matter of months away of embarking on that project with this particular customer. This is a big national integrated surveillance system, very complex, which uses the full feature set of GeoVS, where we're really talking about all the analytics on very high-end radars and camera systems, et cetera. It includes some pretty innovative stuff, and I'm going to stop there with that explanation. But that has really accelerated and is a focus of a lot of time and attention for us. So those 4 projects that it's very easy from the outside to be blind to because you don't see -- we are very conservative in our RNSs where we only wait until it's actually started. It's very easy to think that perhaps nothing is going on, which is absolutely not the case. So in our systems business, we're very focused on those 4 and getting everything in place as these start -- all of them start well before the end of the calendar year. So I think that's a good brief update on where we're going and where we are and what's going on. I don't want to really want to take up too much of everybody's time, but I'm going to have a quick look at the and I don't want to waffle on too much, questions that have been asked -- so just bear with me for one second, maybe nobody has asked any questions.

I don't know why we're not on the exhibitor list for METS, but we are booked in our usual stand. So I don't think there's anything to concern there, and the industry knows where we are and that we will be there. So that was the only question I've had. So in the absence of any more questions -- I'm just refreshing my little screen here. I think everybody is up to date, watch this space in the very near future. And if you've got any further questions, feel free to e-mail me directly or any of our other directors, Richard, Neil or NEDs, Kevin, Simon and Simon to ask any questions. And we are looking forward to also letting you know the date of our AGM and our Investors Open Day, which we hope as many of you as possible will be able to attend, and we'll be able to talk a lot more about the project once we've actually started delivering on those in the next few weeks. So thank you very much, and health, wealth and happiness to all.