SRT Srt Marine Systems Plc

CHAIRMAN'S STATEMENT

The financial period has been one of significant investment in our technologies, products and capacity in preparation to simultaneously support multiple substantial system projects and launch our NEXUS marine VHF/AIS radio system. These investments place SRT in a transformational situation for the new financial year and the years ahead.

Previously expected substantial revenues from new system contracts and our new NEXUS transceiver will now commence in the new financial year which has resulted in our revenues for the extended 15 month financial period, ending 30 June 2024, being much lower than expected at £14.8m (2023: £30.5m) of which transceivers generated £13.3m and systems £1.5m. Gross profit margin was 28% (2023: 36%) with the reduction due to an increase in system project costs associated with project finalisation and warranty and support activities. Combined with the additional necessary preparation investments for multiple new system projects, this has resulted in a loss after tax of £13.7m (2023: profit £0.1m). As at period ended 30 June 2024, cash was £2.8m (March 2023: £2.2m). As at period ended 30 June 2024, cash was £2.8m (March 2023: £2.2m). Following the period end, we are in the process of finalising a significant financing transaction which includes an equity fund raise of £8.5m that will go for shareholder approval in early December.

Our transceivers business is the global leader in digital maritime navigation safety transceivers. These are used by boats, both commercial and leisure, and on marine infrastructure such as buoys, to enable automated communication and enhance navigation safety day and night and in all weathers. Revenues for the 15-month period were £13.3m, generating a gross profit margin of 49%. We are pleased to report that following the Covid supply chain issues which caused our cost and consequently sales prices to spike, normality has returned resulting in both average cost and selling prices reducing, along with normalised margins and manufacturing lead times.

We distribute our transceiver products via a growing global network of approximately 5,000 value added resellers (VAR's) as well as direct to end users, both under our own brands and as an OEM supplier under their brands. This is a hugely valuable network which provides us with global market penetration and therefore during the period we have continued to take care of this network through improving product training and knowledge and preparing them for the coming launch of NEXUS.

In our vessel transceivers business, we primarily sell AIS navigation devices. The long-term underpinning demand drivers for these are well established with a steady buildup of regulations around the world, coupled with a standardisation of AIS as an important navigation system when vessels are first bought. During the period we saw sales in our OEM business fall, due to the reduction in brand-new boat purchases which is the primary source of new business for 'packaged' branded marine electronics systems. We expect to see a further fall and then stabilisation in the new year reflecting the reduced market demand for new boats. However, in the retro-fit market, we saw volumes increase with revenues about the same as the previous year due to the per unit price normalisation following the Covid spike. We expect to see the trend of increasing volumes and therefore revenues continue in future years as more and more boat owners fit and use AIS.    

Our DAS transceivers division provides specialist digital Aids to Navigation transceivers which are used on buoys and other marine infrastructure to digitally mark them and enable enhanced navigation safety and autonomy. With most of the world's navigation infrastructure still being analogue we see a substantial and long-term market opportunity in which we have invested heavily to develop the necessary technology, products and market distribution. Our focus has been to work with our distribution network and relevant waterway authorities to develop DAS deployment strategies and sales opportunities. We are starting to see the fruits of this strategy with revenues for the 15-month financial period amounting to £2.4m (year to 31 March 2023: £1.2m), whilst maintaining a healthy 81% gross profit margin. Looking to the future, for the first time we now have an identified sales order pipeline which we are targeting and believe we will continue to see this segment grow from its current low base.

Development wise, our focus has been the completion of NEXUS which is a new combined voice and data (VHF/DSC/AIS) marine communications transceiver system, with innovative mobile device integration and functionality. This takes us into a new and significant marine electronics market segment. I am pleased to report that NEXUS has entered pre-production and is in its final phases of user testing and refinement. Following a soft launch in 2023 to some of our dealer network, for the first time we have a forward order book for a new product. In November 2024, NEXUS was officially launched under the em-trak brand as the X100. Our global VAR network enables us to achieve global market presence instantly with shipping to commence during early 2025. As a new product we will cautiously limit initial sales in order to garner early user feedback and implement market derived ideas before ramping production. Therefore, whilst market indications suggest strong demand, during the initial 6 to 12 months, we will control sales.

Our systems business delivers sophisticated maritime surveillance, intelligence and management systems to national agencies such as Coast Guards, Border Agencies and Fishing Authorities worldwide. Under our Sovereign Partnership program we have built relationships with four countries in Asia and the Middle East and completed projects worth £50m, and have a further £320m of contracts signed which are now starting. Looking to next year and beyond we have a growing pipeline of prospective new contract opportunities with both existing and new customers which today is valued at approximately £1.2bn. We believe this global market is at the start of its growth and development on the basis that in the future most countries with a coastline and sovereign marine areas will want to have independent next generation maritime surveillance capabilities.

We had expected some of the £320m of new contracts to commence during the current financial period, and therefore took action to prepare. This has entailed the forward purchase of certain equipment ready to ship against early contractual milestone, and the build-up of additional implementation capacity.   However, due to unexpected extended customer contract administrative processes the commencement of these contracts was delayed into the new financial year. As of the publication of this report, we have commenced work on our recently announced $213m contract with the Kuwait Ministry of Interior and are pleased to advise that the final administrative processes on the other contracts are nearly complete and thus expect work to commence at the beginning of the second half of the new financial year. Whilst the combination of increased overheads and delayed revenues has resulted in a significant loss for the period, these extensive preparations have placed us in a good position to successfully implement these multiple system projects within the expected two year time frame.  

During the period we also continued to progress discussions with many new opportunities in our Validated Sales Pipeline (VSP) which stands at an estimated £1.2bn. We expect several of these to convert into contract during 2025 and further conversions, and new additions thereafter.

It is clear to us that we are now entering a new phase of significant growth driven by these existing contracts, follow on contracts and new ones we expect to convert. This is the result of many years of investments in our core technologies, products and capacity to successfully deliver. During the period, we completed several equity raises - in June 2023 we completed a raise of £5.4m followed by a further £10.5m in December 2023, with Ocean Infinity strategically acquiring a stake in SRT and we are starting to leverage our respective complementary products and technologies. In November 2024, we successfully raised a further £8.5m, with Ocean Infinity increasing their stake in SRT and a representative will join our board once the necessary shareholder approvals are obtained for this transaction. This last transaction is expected to complete in early December 2024. These transactions have provided us with the working capital to sustain our product and market investments and be in the strong position we are in today with £320m of contracts and the capacity and capability to deliver to the standards and timescales expected by our customers.

Outlook

Our strategy has been all about investing in technologies and products based upon our expectation that the global marine market for a new generation of digital navigation and surveillance will be very significant. This has entailed a long and continuous period of heavy investment in order for us to have the products and develop the market. We now have the products, the global distribution and signed contracts of over £320m, along with a significant pipeline of future opportunities. This places us in an excellent position to start to realise favourable financial performance in the new year and consistently in the following years. In the immediate two years we will be executing on our existing contracts and pushing forward with growing our transceiver business through our 5,000 VAR's. Furthermore, we expect this to be augmented by conversions from our £1.2bn pipeline of new contract opportunities. We therefore believe the coming years will be transformational.

Kevin Finn

Chairman

1 December 2024

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE 15 MONTH PERIOD ENDED 30 JUNE 2024