REG - SRT Marine Systems - Trading Update

SRT Marine SystemsAnnouncement

07/06/2024 07:00

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RNS Number : 5001R  SRT Marine Systems PLC  07 June 2024

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF
THE MARKET ABUSE REGULATION (EU) 596/2014 AS IT FORMS PART OF UK DOMESTIC LAW
BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018 ("MAR"), AND IS
DISCLOSED IN ACCORDANCE WITH THE COMPANY'S OBLIGATIONS UNDER ARTICLE 17 OF
MAR.

 

 

SRT MARINE SYSTEMS PLC

(AIM: SRT)

("SRT" or the "Company")

 

Trading Update

SRT Marine Systems plc ('SRT'), a global provider of maritime domain awareness
systems and technologies for security, safety and environmental protection,
hereby provides a trading update.

Whilst both our systems and transceivers businesses are progressing very well
within the strategic global maritime domain awareness market, it is with
considerable disappointment that it now appears likely that new project
revenue milestones in our systems business which were expected to be completed
in the current financial period will move into the early part of the next
financial year. This is due to longer than expected customer contract
completion administrative processes, resulting in significantly lower than
expected revenues for the current year, which will aggregate to approximately
£14m mostly derived from our transceivers division and thus resulting in a
loss for the period.

The two projects to which these specific deliveries relate is one with an
existing Middle Eastern Coast Guard Customer ("Customer 1") and one with a new
SE Asia National Coast Guard Customer ("Customer 2").

With regard to Customer 1, the total project is worth a gross value of £40m,
and we have successfully delivered and completed Phase 1 which was worth
£16m. Phase 2 is worth £12.5m and Phase 3 worth £11.5m. Phase 1 was
completed in 2023, and Phase 2 was expected to commence during the second half
of our current financial year. The process of finalisation and award has taken
longer than expected due to a combination of the customer amending the exact
scope of the project on several occasions along with the required redrafting
and internal verification of formal project documentation. However, we are
pleased to advise that the scope of Phase 2 has now been formally agreed and
confirmed and the customer has advised that they expect the formal
documentation and notice to proceed to be issued within the next few weeks.
This timescale is likely not to be sufficient to permit the physical delivery
and customer acceptance of the initial deliveries and milestones, worth
approximately £9m, in the current financial year and thus we feel it is now
likely that they will fall into the new financial year along with the
associated revenues and cash receipts shortly thereafter. This is not expected
to affect Phase 3 timing, the scope of which is also agreed, and which is
scheduled to start in early calendar 2025 as per our customer's requirement

With regard to Customer 2, in May 2023 we signed a binding project contract
worth £140m to deliver an SRT C5iSR system with a sovereign Coast Guard.
Since then, much preparation has taken place, including project planning,
surveys, and procurement. The project is financed by an inter-government loan
between the UK Export Finance ("UKEF") and the country in question, the
framework terms of which were agreed by the parties in early 2023 prior to the
project contract. At the time of signing the project contract we were advised
that such inter-government loans usually take around 6 to 9 months to
complete, following a well-worn process and thus we expected completion in
early 2024. However, it has become clear that such inter-government
interactions, move steadily but slowly according to a defined process.
 Whilst SRT is not party to this process, we, along with our project customer
are passive observers and maintain close contact with the UKEF and the
co-lending bank. In March it was indicated to us that the expected completion
should be achieved in May, however, whilst there has been material recent
activity and progress in the documentation finalisation process, with both UK
and Customer representatives indicating a June completion target, we feel that
it is more realistic to expect completion early in the new financial year.
 This completion timescale would mean that the first milestones, worth
approximately £45m, and their significant associated revenues and cash
collection via the project loan mechanism would fall into the first few months
of the new financial year.

Earlier this year due to the originally expected delays and a requirement to
meet certain financial ratios for a specific contract opportunity with a new
Asian customer, we extended our year end by 3 months to the end of June. The
likely delay in receipt of revenues means that the original objective of the
year end date move may not be achieved. However, the project in question has
been split into two, thus reducing the value of each and the required
financial ratios to qualify and therefore irrespective of the likely changes
to this year's performance we are confident that we will meet the bidding
criteria and therefore expect to enter bidding for both later this calendar
year.

As previously announced, a complaint filed against the Company and CFO,
Richard Hurd in the Philippines was formally dismissed and therefore our
business continues as normal. Our team are focused on completing our contract
and continue to have regular and intensive engagement with BFAR to implement
their now fully operational IMEMS integrated digital fisheries monitoring
system. This system provides the Philippines with a sovereign, state of the
art digital platform on which all fisheries management functionality is
efficiently integrated for any vessel type from the largest oceanic fishing
vessel to the smallest local artisanal boat. The system provides functionality
which enables highly flexible and configurable environment science-based
fisheries management that benefit the fisherfolk, commercial fishing companies
as well as the ambitious national fisheries development strategy. However, as
also previously announced, the Ombudsman did recommend further investigation
against CEO, Simon Tucker. The Company's position is that the complaint is
entirely baseless and without merit and we are fully co-operating with the due
process and hope for a favourable outcome in the coming months.

Outlook

Since our last update we have also made some significant strides with a number
of projects, but particularly, two in SE Asia worth approximately $50m in
total, two in the Middle East worth $9m and $200m, one in Africa worth
approximately $200m and one in SE Asia worth an indicative $100m. These are
all with sovereign coast guards and are for the first phase of their build-up
of large national maritime surveillance systems. Of particular note are the
two in the Middle East. The smaller one received internal approval to proceed
in 2023, however due to multiple scope changes this has not proceeded to
contract with SRT. However, the scope has now been finalised and we have been
advised that the final contract is now in preparation and pending issue and
therefore believe this is likely to commence in the next few months.  The
larger contract opportunity contract timing looks likely to be later this
calendar year subject to project scope finalisation and final award.
Considerable customer engagement and planning work has been completed and is
ongoing in respect of these two projects. For the African project we have
conducted several project specification workshops and presentations and
submitted several revisions of detailed proposals which have been well
received and are now under consideration by the relevant Ministries and they
appear eager to progress at pace. This is a similar situation for the new SE
Asia Coast Guard project. At this stage the precise contracting timeframe
remains uncertain, but our current view is sometime toward the end of 2025,
with a 2 year implementation period once underway.

Our transceivers business continues to expand its market penetration. The late
start to the boating season due to the adverse conditions means that sales are
lower than last year, but gross margin contribution the same as our cost of
production has normalised. We expect sales to pick up as the season
progresses, as well as see the effect of some new regulations for vessels to
install AIS. Our high margin Digital AtoN business has started to see the
expected growth as the market for digital marine traffic management starts and
our team have built up some strong opportunities in Middle East, Europe and
USA which we expect to continue to drive revenue growth in the future.

One of the core fundamentals of SRT is the quality and sophistication of our
core technologies and products. The suite of transceivers and MDA systems that
SRT has today is the accumulation of many years of investment by many
professional engineers across multiple disciplines. Coupled with a proven
ability for mass production and delivery globally. Whilst we wait for these
large slow-moving projects to convert, we have been able to continue and
indeed accelerate our product investments. In the past year we have launched
and implemented a range of new functionalities and improved performance within
our GeoVS MDA System solution. This includes improved vessel detection and
alerting, enhanced visualisation capabilities, environmental-science based
fisheries management, and deeper integration of sensor systems such as radar
and cameras.  On the transceiver side, our new NEXUS product which takes us
into maritime voice communications segment, has now entered pre-production and
its final stages of user and technical testing, prior to the commencement of
shipments in the autumn. Since its soft launch in November 2023, we have built
up a forward order book, and interest amongst our +4,000 distribution network
is strong and growing. As this marks a fundamental shift in the strategy of
our transceiver business into a new and much larger market segment, our
strategy is to proceed carefully thereby fully leveraging our reputation for
quality marine communication and navigation safety products and thus slowly
build up distribution, sales and production in order to maintain quality. As
such we are expecting a solid contribution from NEXUS during the next
financial year with more material growth thereafter.

In January 2024, we successfully completed an equity cash raise of £10.5m.
This placed the Company on a strong cash footing intended to enable us to
withstand the variances that come with our strategy of becoming a large global
maritime systems business.  In addition, we retain our secured loan note
programme where we have existing undrawn capacity of £16.7m. Thus we are in a
positive position to weather the project delays.

We are disappointed that the timings of the pending projects have not been as
we expected resulting in the period ending June 2024 being one of poor
financial performance. This does not reflect the underlying fundamentals of
the business which we believe have never been stronger, or the significant
operational progress made in core technology and product development and
target market penetration.

Simon Tucker, SRT CEO commented: "I fully understand and empathise with the
concerns of our shareholders at this time, and personally apologise that our
financial performance this year is not expected to be as we had predicted.
These are short term delays, with short term consequences. The fundamentals
and prospects of our business are strong, and we are fortunate to be in a
supportive working capital position. Speaking on behalf of the Company and the
Board we are confident that SRT will quickly pass through this brief period of
delays."

 

 For further information, please contact:
 SRT Marine Systems plc                                                          www.srt-marine.com (http://www.srt-marine.com)

                                                                                 + 44 (0) 1761 409500
 Simon Tucker (CEO)                                                              simon.tucker@srt-marine.com (mailto:simon.tucker@srt-marine.com)
 Chanene Romain (Marketing Manager)                                              chanene.romain@srt-marine.com (mailto:chanene.romain@srt-marine.com)

 Cavendish Capital Markets Limited (NOMAD & Broker)
 Jonny Franklin-Adams / Teddy Whiley / George Dollemore (Corporate Finance)      +44 (0) 20 7220 0500
 Tim Redfern / Harriet Ward (ECM)
 Yellow Jersey PR
 Charles Goodwin / Annabelle Wills                                               +44 (0)774 7788 221

                                                                                 srt@yellowjerseypr.com (mailto:srt@yellowjerseypr.com)

About SRT Marine Systems plc:

SRT Marine Systems PLC is an established leader in the growing global market
for maritime domain awareness. We provide advanced technologies, products and
systems, that integrate multiple proprietary technologies such as advanced
analytics, data fusion, augmented visualisation, that enhance maritime safety,
security and environmental protection and sustainability. Our customers range
from governments to vessel owners around the world.

 

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