@SRT on the cusp?

SRT Marine Systems is a company I know well. Many people have described it as a jam tomorrow company and the patchy record does lend credibility to the allegation. However, there are good reasons to believe that image is about to change. I first bought shares around 2010. Up until then the company was primarily a supplier of radios. Its name in those days was Software Radio Technology. My interest coincided with a change of direction when the company entered the AIS market.

AIS stands for Automatic Identification System. It is used by ships and smaller vessels to broadcast their presence to other vessels. It was originally conceived as a means of saving lives and applied initially only to very large ships. The SOLAS convention came into effect in 1980 making the use of AIS mandatory for certain categories of vessel on a Global basis by the International Marine Organisation.

AIS uses VHF radio frequencies so SRT had appropriate expertise to enter the market as it began to broaden into non mandatory classes of vessel. At first the devices, called transponders, were bulky and the size of a brick. SRT developed a much smaller chipset the size of a credit card which revolutionised the form factor of these boxes and cut their cost.

Since then, SRT has developed an even wider range of devices which use AIS and is now a market leading supplier. They design them, but outsource manufacture. They sell directly via their in-house brand em-trak and over 1000 dealers world wide. They also supply most of the well known OEM maritime equipment brands with products made and packaged to show the brand name and cosmetic changes and em-trak takes care not to undercut the branded versions. Despite this the em-trak profit margin is higher. They operate from a small industrial estate in Midsomer Norton, Somerset. Throughout my time as shareholder, the company has always been cost conscious, eschewing fancy offices. They are a very shareholder friendly, keen to respond to enquiries and regularly provide web casts to update on developments. I have attended most of the AGM’s during the time I have known the company.

Selling transponders, even as a market leader has not made for serious profits, particularly when, despite mandating the use of AIS in their waters, many countries simply failed in the enforcement. SRT’s prospects changed in 2013 with the purchase of GEOVS as reported here:

https://www.insidermedia.com/news/wales/100588-

GEOVS brought in a software system that could display vessels in real time. It had novel features that incorporated external factors like the state of the tide, wind speed, the local topography and the ability to visualise the terrain and other vessels. This system was the forerunner of today’s system offering which is beginning to make significant inroads around the world.

SRT now focuses its main sales effort on its systems offerings. These cover Fisheries management, Traffic management for port and waterways authorities and domain awareness for coast guards and security agencies. The systems are extremely sophisticated, fusing multiple data sources, e.g.from vessel AIS, radar, CCTV and satellites across an extended network.

Covid and supply chain difficulties aside, the main factor which has slowed the spread of vessel monitoring systems is complexity. Many countries have indicated that they wanted to install a system but experience has shown that they do not have a clear idea of what they require or the necessary budget to finance the project. It’s not just the system specification, equipment and installation that’s complex. Sites need to be identified, buildings and transmitter towers need to be built. Laws need to be passed so that requirements can be enforced. Staff need to be recruited and trained. Vessel owners and seamen need to be won over to new ways of operating and associated costs factored in. Dealing with governments throws up many hurdles. Various departments and agencies all want input and it can take several years from initial contact to a signed contract.

In 2015, Bahrain became the first significant installation of the SRT monitoring system. Small in terms of scope and cost it provided SRT with a working reference site which the customer was only to proud to display to its neighbours. Bahrain also provided many useful, early lessons. The most significant was that a system capable of showing the position of many thousands of vessels in real time presented operators with an overload of information. What they needed was a system that not only highlighted activity that required action but also automated that action. As a result, GEOVS can now detect suspicious activity, such as two boats coming together for the transfer of fish or simply a speeding boat. It automates the instruction to send personnel to investigate or simply to generate a speed warning to the boat’s captain. Many other unusual scenarios have now been built in and twice-yearly releases of the system add new functionality quickly, as it is developed.

A key USP of the SRT system is that the data it uses remains in the customer’s country under their own control. They are not beholding to a foreign power for access. Given the many potential friction points between nations, a small company based in Somerset does not pose a threat to anyone’s national security.

In 2018 shareholders initially rejoiced when BFAR, the Philippines Bureau of Fisheries and Aquatic Resources awarded SRT a large contract. This was to have been financed by a loan from France who expected a French company called CLS to win the contract. When SRT won the tender, the loan offer was withdrawn and the finance had to be internally budgeted. Five months later, SRT were re-awarded the £31m contract to initiate the biggest fisheries management system in the world. In 2023, much of this system is in place and operational. One of its many aims is to record and report fishermen’s catches as they happen so that they can be shown to be from a sustainable source as this significantly increases the value of the catch. In many countries, fish that has no provenance cannot be sold in quantity. In Japan, Tuna proven to have been caught legally is worth much more to the fisherman that caught it.

Now it is expected that the system will be extended to widen its scope and to increase the number of vessels being monitored.. Recently came reports that “the Philippine Coast Guard (PCG) forged an agreement with the National Coast Watch Center (NCWC) and Bureau of Fisheries and Aquatic Resources (BFAR) on Tuesday, Jan. 24, to improve the monitoring of the country’s marine environment.”

Elsewhere, in January 2022, another Middle East Maritime Domain Awareness contract was awarded worth £40m. Whilst the customer requires SRT not to reveal their identity, observers assume it is the Kingdom of Saudi Arabia. The customer is known to want to shorten the original timeframe of the project from three years to two and one must assume that this is part of a longer-term plan with additional phases in mind.

Back in 2016, Indonesia awarded SRT a large contract to create a MDM system worth $100m. In 2017, the contract was postponed citing budget issues and a project review. In this case SRT had been represented by a Swiss company acting as agents of the customer. The lack of direct contact with the end customer undoubtedly led to this situation and it has since fallen to SRT to rebuild mutual trust directly with the customer. Happily, the merits of SRT’s offering are still obvious and appear to be coming to fruition.

Evidence for this came recently at a defence exhibition in Indonesia where they proudly displayed their weaponry and capabilities. In addition, as shown by this You Tube video, the presenter says “we already have a surveillance system”. There is a clue as to who supplied that system – in the video at approx. 1 minute 21 seconds, a display screen showing the system also shows the words “powered by SRT “in the bottom left corner.

https://www.youtube.com/watch?v=oGZxdcgMOGA

Then in November 2022 SRT announced a small contract with a national coast guard. A recent picture on the SRT webs site shows a group of people in Jakarta being trained to use the SRT system.

https://srt-marine.com/gallery/#group-1

This recent development is just one of the reasons why I suggest SRT may be on the cusp of “producing the jam”.

Keen SRT watchers know that Indonesia has a budget of $180m for the development of a maritime surveillance system. The Rear Admiral in charge is quoted in the local news as saying:

The Maritime Security Agency ( Bakamla ) will build a national maritime monitoring system or National Maritime Surveillance System (NMSS) at 35 points in various parts of Indonesia. “So the plan is to have 35 points throughout Indonesia that will be installed with NMSS," said the Head of Bakamla RI Rear Admiral Aan Kurnia in a press release from the TNI Information Center, Friday (26/1/2023). Of the 35 points, Bakamla has prioritized the construction of the NMSS in Bengkalis Regency, Riau. "This year, Bengkalis Regency is included in the development priority program,"

"At least this year, we will build shelters. Then there are radars, long range cameras, and communication and information facilities," said Aan. Aan hopes that once the NMSS is built, it will be able to create jobs for the sons and daughters of Bengkalis. "Bakamla hopes that there will be sons and daughters of Bengkalis to join Bakamla and later we will place them at Bengkalis Station. It could also be at Bakamla Headquarters or on Bakamla ships,"

He talks about 35 points (locations) so it looks like a programme of incremental developments adding control centres sequentially. The central control centre which will be in Benkalis will occupy a large, 2 acre site. Momentum is clearly growing.

All of these system contracts are intended to generate long-term recurring revenues. The initial installation contract involves the supply of servers and software as well as a myriad of other items including transponders for large numbers of boats. Whilst some of the externally supplied hardware is relatively low margin, software is much higher margin since the costs of developing the system has already been incurred and is defrayed each time the system is sold.

There are also ongoing charges for new system releases and once a customer has installed the SRT system it is not going to change to a different supplier. Data is another chargeable item whether it is acquired from satellites or on vessel AIS transponders. Recurring revenue is the goal but first it is necessary to install the system.

One other item is worthy of a mention. For the last 18 months or so, SRT have been developing a new product for their range of transponders. The product called NEXUS was shown to most major marine electronics companies last year to establish their interest in adding it to their branded range and to allow time for them to plan for this. Details are sparse but it is clear that SRT believe NEXUS will be a major contributor to transponder revenues and will offer users a level of functionality and interoperability not seen before at a competitive price. In essence this will be a combined AIS/VHF radio but whilst that is not new, some aspects of its design will be. It is known that NEXUS will incorporate a technology called VDES. This is important because it is reckoned that about 47% of shipping travels beyond the range of AIS transponders. There is a growing demand for continuous connectivity, and two-way communication, often via satellite. AIS can receive satellite data but cannot reply. VDES has been designed to overcome this obstacle. A significant amount of R&D resource has been invested in NEXUS which is due to launch, possibly by mid-year 2023. The marine market reaction is eagerly awaited.

This SRT document from late 2021 covers many of the topics I have mentioned here. 

https://srt-marine.com/wp-cont...

Hopefully, this article has provided enough information to enable those who may have consigned SRT to the “jam tomorrow” bin, to re-evaluate the company.

SRT’s web site listing its products and other useful information is here:

https://srt-marine.com/product...