SRT Marine Systems LON:SRT, the AIM-listed engineering firm that builds maritime surveillance, security, management and safety products, and integrated systems, has been charting a course to less stormy waters in 2024.
The marine security company published its final results for the 15-months to end-June today (2nd December) and at least in the first six months of the calendar year, the company was still in firmly in recovery.
SRT published 15-month results as in March the company decided to change its year-end from end-March to end-June in order to: “[…] tender for certain pending new system contracts.” What this means is that SRT will now report its six-month interim results for end-December by end-March, and its full-year final results to end-June by end-December.
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The rationale for the change in accounting periods is that SRT is tendering for a piece of business in a certain part of the world where the potential client requires bidders to have a specific minimum financial ratio criterion in relation to the size of the target new project, in order to bid for the contract. Under its current financial year some of its existing system project deliveries, which were expected to complete in March, will now slip into the next quarter because SRT’s government clients are taking more time than expected to sign-off, something compounded by Ramadan and Eid.
Kevin Finn, SRT’s chairman explained: “We had expected some of the GBP320m 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.”
SRT’s reporting date change could be net-positive for SRT
This would mean that SRT’s financial ratios – with regards to this specific tender – would be less than they should be (had the contracts agreed already gone through on schedule) and would have affected SRT’s ability to bid for this new contract. As an investor this change in reporting dates should be seen as a good thing, as it is a big thing for a listed company to change its accountancy period, and if SRT believes that it needs to take this measure, its management must feel that it is in a very strong position to win the contact, which could be very positive for the company’s bottom-line
So, in this unique 15-month period, the company reported revenues of GBP14.8m. This was a long way behind the revenue of GBP30.5m that SRT reported for the 12-months to end-March 2023. The company saw gross profit of GBP4.2m, and although not a comparative period in the 12-months to end-March 2023 the company reported gross profit of GBP11m.
However, administrative costs and FX ballooned to GBP17.2m by the end of the 15-month period. For the year to end-March, admin and FX costs were GBP10.9m, which saw SRT’s loss before tax of GBP14.4m. Again, although isn’t a direct comparison loss before tax for the period to end-March 2023 was GBP646,172.
Finn commented: “[…] 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 […] multiple system projects within the expected two-year time frame.”
SRT paying off loans and debts
In terms of debt, SRT’s bank debt at the end of June was GBP1.5m and was drawn-down in September 2023 as part of the UK Government’s Recovery Loan Scheme and was at an interest rate of 3.5% above base rate with repayments starting in September of this year. SRT pushed the final repayment of GBP0.5m to this month.
SRT also has GBP8.32m in loan notes which have a three-year tenor and interest rates of between 8% and 12%. As well as bank debt and bonds, SRT has, as noted above, equipment loans of GBP4.15m for components of a systems project. This is being paid back quarterly at a 4% interest rate and a three-year term.
The company secured GBP320m of system contracts and had a pipeline of around GBP1.2bn which Kevin Finn, SRT’s chairman said the company expects to convert into contracts in 2025.
As previously reported, SRT Marine Systems is a global leader in maritime domain awareness technologies, products and systems. The company develops and provides integrated maritime surveillance, monitoring, management and safety systems which are used by coastguards and fishery authorities for the purposes of managing and controlling their maritime domain. The SRT Vessel Monitoring Systems (VMS) system enables governments and national authorities to be able to reliably track, monitor and manage fishing vessels of any size and type in real time, without range limitation, at optimal cost.
Confident outlook for 2025
To give SRT credit, their current underperformance is due to factors outside its control, namely its clients delaying on rubber-stamping contracts already agreed. Now if this situation were to extend, it could blow up into a real issue for the defence and security contractor, however, management has confidence that the necessary documentation will imminently be secured, making the next reporting period a great deal rosier. Moreover, with GBP1.2bn of contracts in the pipeline, and the strong possibility of winning a big deal, signalled by management taking evasive action and changing the company’s reporting date to give it a good chance of winning what must be significant new business, the outlook looks favourable.
SRT’s CEO, Simon Tucker said: “I had hoped for, and expected, a much better financial result for the financial period ending June 2024. We under-estimated the time it would take for the final administrative processes to complete for contracts worth approximately GBP320m, resulting in significantly lower revenues and profit contribution during the period. However, this time, and the investment received during the period, has given a critical advantage in that we have been enabled […] to prepare and build up our capacity to execute on multiple system contracts simultaneously.”
The company still seems to have the backing of existing and new investors, evidenced by successful fundraising in the last year, raising GBP10.5m this time last year, and another GBP8.5m (before expenses) in November.
The company’s shares opened the week at 39.675p, down 5.5% from one-year ago. The company has a market capitalisation of GBP93m.
