Transense Technologies (LSE:TRT) — AGM Investor Update

0:02 Good afternoon, ladies and gentlemen, and welcome to the TRANSENSE TECHNOLOGY PLC AGM Investor Update. This update, investors will be in listen only mode. Questions are encouraged and could be submitted at any time using the The company may not be in a position to answer every question it receives during today's meeting. However, the company will review all questions submitted today and where appropriate, publish those responses. These will be available via your Investor Meet company dashboard, and we'll send you an email

0:33 when they're ready for your review. I'd also like to remind you that this presentation or update is being recorded. Before we begin, we would like call you, Thank operator Thank you for the introduction, Mark, and welcome everybody. We're transmitting live from our boardroom at Western On The Green in Oxfordshire. Glad to see once again a very good attendance for this session. Thank you very much for taking the time to join us. You'll see around the table we have Rodney Westhead, Melvin Siegel, and we also have Nick Hopkins and Ryan Morne, and then myself at the top of the table, Nigel Rogers. You've probably used to seeing my mug online before.

1:23 So this is a slightly less formal session than perhaps we've done in the past on the IMC platform, but we wanted to create an opportunity for shareholders to be able to ask questions around our AGM update which came out this morning. Obviously, with COVID being as it as it has been, there have been limited opportunities for shareholders to attend our AGM, and we wanted to make sure that there was a platform for informal questions, which normally we would take immediately following the meeting. So we've actually completed our AGM a couple of hours ago. I'm pleased to say that all of the resolutions were duly carried. And that AGM came after a trading update on some very important news this morning about changes within our boardroom. So turning first of all to the trading update, of course, it's only eight short weeks since the last time we gave a comprehensive update at the time of our final results for last year.

2:18 So relatively little has happened in that time, and it is only seven weeks to our period end. So it's kind of that time of year when trading updates are quite frequent. Our six month period end comes in December, and our interim results will be published in February. But having said that, we have provided a brief update this morning, and the news there is that revenue is on track and meeting expectations. We continue to be profitable and cash generative, and in fact the cash balance at the end of October was £1,340,000 about 30% higher than the end of the prior year. So trading, very much on track, but the big news today and and, you know, frankly, important than the short term trading news, is some changes in our boardroom which we think are extremely significant, and we're delighted to be welcoming both Nick and Ryan to our board.

3:13 The main reason for setting this session up was really to give them a short opportunity to introduce themselves to shareholders and and also for them to take questions.

3:23 We're delighted that Nick has joined the board after being with us for about seventeen months now, And Ryan joined our SOAR cap committee in December of last year, so he's now been involved with TRANSENSE for about eleven months. And with effect from the December 1, they'll be coming into the boardroom. So I think perhaps to make a start, what I'd like to do, first of all, if I pick on Nick, is invite him to give us a short pen profile of his experience before he joined TRANSENSE and just briefly talk you through his CV and we'll be keeping an eye on the Q and A bar to see what comes in while he's talking. Nick, over to you. Okay. Thank you Nigel and good afternoon. So my experience, I've had a number of years with the British Army's Commission officer in the Army Air Corps where I was fortunate enough to fly helicopters as well, but also had the management and command experience.

4:16 But I've also had experience with sensor technology and learning about saw technology, which I think is quite useful for this my present job. And I've also managed a communications company for a number of years before arriving here at TRANSENSE. Thank you, Nick. And I think as well people will be very interested to hear perhaps what you found when you joined TRANSENSE and the things that you've been able to change and achieve over the last few months. Well, thank you. Yeah. So it has been a particularly interesting time as many of you will appreciate because we've experienced the COVID scenarios that we have. So it has somewhat limited our ability to get out and see people.

4:59 Also I've been aware of TRANSENSE for many years having worked with SENSENSE TECHNOLOGIES. But perhaps in some ways the short time I've been here, a lot of it has been relationship building, making sure that our supply chain is more enhanced there as opposed to the subsequence wave supply chain and the ASIC supply chain. It's also establishing relationships with our licensees at GE and then working with McLaren Applied, there's a joint agreement there. Many of you will be aware that we signed a joint collaborative agreement with McLaren not so long ago, and that work is now increasing, which is good news. We've also employed a couple of new staff here to meet our expected inquiries and and customers.

5:50 We have updated the website in that time and continue to work on that. And we've also updated our I 9,001 status. And then also, over the last year, we've had benefit really under sort of Nigel's leadership and management with the SOAR cap, and Brian's here with us as well. But what that has really helped us is in fact triaging

6:13 where we are and where we think that SOAR technology will be best suited. And therefore, that gives us a platform really of which direction we need to go. So that's really quite a lot of work that's been happening over the last sort of sixteen, seventeen months. Absolutely. Thank you, Nick. And now perhaps I'll I'll turn to Ryan and again ask Ryan if you could just let people have a a pen profile of your experience and and track record. Sure. So my name is Ryan Morne. I I'm an engineer by background. I began my career in the motorsport industry. I went on to work for a company that made special bearings for rotating machinery. And then I set up a company called Avid.

6:58 Avid was involved in developing components and systems for electric and hybrid vehicles way back in 2004, so before that had kind of really taken off. Developed and grew Avid over the years. We had a position sensor business that we sold to Continental in 2012, spun out a battery business also in 2012. And then eventually, I exited Avid to an American group of investors earlier this year. So my background is very much around engineering, and the last fifteen years I've spent developing motor drive systems for for different applications on hybrid and electric vehicles. Sound good.

7:40 And then joined our SOAR cap committee in December Yes. Of last year. Yeah. Perhaps you could just talk a little bit about the work of that committee over the last two months. So I think it was really interesting for me to be invited by Nigel to join the SOARCAP. I hadn't come across TRANSENSE TECHNOLOGIES before. So, you know, I'm I'm I am based up in the Northeast Of England, so not too far from from where Nigel is and I'll pass across on some other business. So with my background in automotive and and electric motors and and drives, learning what we could potentially do with with this the torque sensor, it it started to get a lot of ideas flowing, you know, for for me. And and then we had a great great group of people assembled around the table within the SOAR cap where we could look

8:32 at different potential applications for the technology and really think, as Nick puts it, triage them and decide where the key focus areas were going to be. I think I was able to bring my experience of sort of drive system development and and particularly in the automotive space, but and more recently a little bit in electrified aircraft to to that in terms of how these things could bring bring a benefit to those systems and and how maybe they're essential for safety reasons, or maybe they just bring another benefit like helping to improve the efficiency of a machine or a or a vehicle. Okay. Thank you. I'm I'm just now starting to look at some of the questions which are coming in, and perhaps one question area which is certainly of interest is the relationship with GE, and many people who are tuned in will know that we have a long standing relationship with GE and there have been recently some changes within within their organization.

9:39 I'm just gonna ask Nick if if you could just talk a little bit about the the way that the relationship with GE has developed over the last few months that you've been involved, the contacts that we have within GE Aviation, and also specifically, one of our shareholders is asking about relationships within the research division of GE, GE RC. Yes. So I'm just reading that question there now. So you're not specifically involved in trials at the moment with GE Research, although we are in contact and we do

10:07 occasionally actually speak to GE research and have over the year established a relationship with the people who are working there. They have a very good relationship again with the nine zero one programme. And and through that, then there there are probably opportunities that we can probably try and extract that technology across to some other programs as well. Thank you. And I think a more general update on SOAR is being requested. I mean, we we obviously did quite a comprehensive update on areas of interest within surface acoustic wave just a few weeks ago, so I don't want to become repetitive. But I do think it would perhaps be interesting just to have Ryan's perspective briefly on where we see some of the

10:55 brighter opportunities as far as the application of surface acoustic waves technology is concerned and and perhaps, you know, what comes top of the hit list in business development over the next few weeks and months. Yeah. Sure. So I think building on what Nick said, obviously, there's an existing relationship with GE where it's going now into maturity. So a lot of hard work has already been done to prove the component in that aerospace application. So that's deeply embedded as a key component in a control system,

11:28 you know, in an aerospace application. There are lots of others like that that we can build off. And having had the experience of going through that with GE, who are one of the most, you know, demanding customers, prestigious customers that you'll find in that sector, you know, that that's a great reference point for other aerospace control type applications. Adjacent to that, we've got a lot of activity in electrified aerospace. So electric drives for helicopters and VTOL aircraft and planes. That's a huge growth area and there's some quite specific requirements in terms of control integrity in those applications where having a torque sensor to verify that the motor is doing what you're expecting it to do is really important and efficiency is really important in those applications as well. So aerospace is a really interesting space for this and I think more kind of automotive like heavy duty truck and off highway machinery, those kinds of applications as well where again efficiency is really critical and there can be as well a requirement from a safety verification angle. This could be used obviously more and more electrified vehicles coming through and there's a normal way of measuring the performance of an electric motor. Putting a torque sensor on there gives you a whole other set of control possibilities that that you can look at. So in

12:59 in in those applications as well and just in complex industrial machinery. So, you know, any system where you've got lots of moving parts basically, the the ability to have an embedded torque sensor that's robust and reliable and and is gonna live the the life of the machine is is is really interesting. So, you know, three three kind of big focus areas there with with plenty to go at, which are, you know, particularly when we look at electrification, the the big big growth areas. Thank you. I'm picking up a question which is coming in from Michael, which is about supply chain issues and supply chain risks. And I think we'll we'll probably take that question in two parts, Michael.

13:47 The first part, I think, we'll talk specifically about the source supply chain, which is obviously dedicated component suppliers and largely relationship built. And perhaps Nick will talk a little bit about, obviously, quite generic terms, some of the work that's being done there. In terms of more general supply chain risks affecting the more commodity electronics that we purchase, and I'm thinking there are components for our probes, but also for the a 10 ATMS iTRAQ kit, then perhaps I might just ask Melvin to talk a little bit about the work that's being done to mitigate the supply chain there. So perhaps first on on SAWNIC. Just Yes. So the way I sort of read that question was about it applied perhaps much more to the the probe than that. So I think it's a chain. So from our supply chain, I mean, predominantly, our business, obviously, is to license technology and then to license the supply chain through that. And there are really no supply chain issues in that because we're quite so bespoke.

14:46 You know, we're a supplier for the sort of ISS, the old course packages, and a supply chain for our ASIC as well. So there aren't really any any issues on that in the way that one has read in the press about the the component shortages. Absolutely. So we're okay. Thank you. And and Okay. As far as the probe is concerned, obviously, this has come exactly the same time that the demand for the probe is actually increasing. But we have been aware of this. It's a global issue, and we have been building up our stock numbers, and we'll probably see that come the end of December, and trying to mitigate the problem by building up the stock numbers. We we have found that the cost of certain processes has increased because of the shortage, but we being mindful of the problem, we have started, as I say, building up our stock numbers and preparing for it.

15:46 But so far as the current situation is concerned, we have sufficient stock to deal with the existing demand, which as I mentioned, means an increasing demand on the product side of the business. Thank you, Melvin. A couple of more

16:05 financially orientated questions if you like as well, which Melvin and I perhaps answer between us. So a question from Brian King, which is that at the time of the Bridgestone transaction, we were talking about the saw business seeking to be at breakeven within eighteen months, and he's asking whether that's still an aspiration and still on track. Well,

16:28 as I think we've discussed before, short term financial drivers of the business are far more dependent, in fact, on success in the other two areas of the business. The surface acoustic wave business is still at a stage where we are priming the pump for the future, and we recognize that that involves a degree of financial investment. We are still looking at short term drivers for profitability in surface acoustic wave, and I think, you know, of particular interest and one of the major themes of Nick's leadership of the business over the last few months has been to expect customer funded programmes to come to the fore and do far less speculative work than the company had a reputation for in the past. And so I think that it, you know, it will become an increasing feature of our business that customers and or grant assistance will fund some of the development work that we do, and we'll have to be self funded to a much lesser degree.

17:26 In terms of time scale to profit, then the research note is still showing us investing in the sole business up to the end of June twenty twenty three. The financial year 2023 is is still showing that as being a cash negative business, so it ought not come to a surprise if that's the case. However, it it is inherent in our financial structure, in our own management of the business, and in the incentive plans that we have in place for Nick and others, that that business will become profitable in the short to medium term. The next question I want to pick up is in relation to Bridgestone and whether there's any news on the acquisition of OtraCo.

18:14 And the answer to that is, unfortunately, there isn't. It's still expected that that transaction will complete by the end of the year, but it's with competition authorities and others at the moment. But we still expect that that transaction will complete in time to get a good run at it in 2022. And, you know, we are aware in the background that there are some very good preparation strategies in place for when that deal is finally consummated. So we still have great high hopes of that being able to provide extra volume for the ATM SI TRT business next year. Is anybody picking up any questions I'm missing here? There's one from Jordan r, which is just okay. It just dropped down.

19:00 Have you given guidance or a range on what iTRAQ revenues might be at maturity? The answer to that is is no. We haven't. It is something that I think is of interest to the Ian German who does our research now, and maybe something he will look at when he does the next research. And we've got a couple of years, of iTrack revenues under our belt. We might be able to then extrapolate that and give some sort of idea that so far as us as a company know we haven't. Another question which I think was presubmitted on the platform was surrounding the company's policy as far as buybacks or the dividends are concerned. And, clearly, we're now in a position where we have distributable reserves and by virtue of being profitable and now starting to gather some cash reserves in the company as well.

19:55 And so there's a question on the platform as to what the board's stance was in terms of balancing the opportunity for share buybacks against the opportunity to pay dividends. We have signaled that by FY twenty three, that was by the financial year ended 06/30/2023, we expect to be in a position to expand on our dividend policy and, at that stage, communicate how we would intend to allocate any surplus cash and surplus distributable reserves between buybacks in the in the form of effectively return of capital or dividend policy. I think that, you know, clearly, the extent to which the value of the company is reflected in the share price is bound to have an impact on our tactics as far as buybacks are concerned.

20:47 However, we're also mindful that the shares are already very closely held, and so to execute buybacks would actually exacerbate that situation as well and does create some volatility in the share price. Volatility in the share price is an opportunity if you're buying low. So, certainly, that's something which we as directors have taken the opportunity to do from time to time, and I know many of our smaller shareholders have as well. And question is to if and when companies in a position to do that is one for the future. I believe there was a question relating to the cash balance at the end of October as to whether that included the royalty, and the answer was yes. It did because the royalties are paid one month after the quarter end.

21:34 So whilst when we report in December and June, our cash is generally at its low point the following month. Our cash is generally at one of its higher points. So, yes, it does include there's a question from Simon c, which is an interesting one. What do we see as our greatest risk and opportunity to the business moving forward? Yeah. I mean, discussing business risks is a topic which has changed enormously over the last couple of years because I didn't actually see a global pandemic on any company's list of risks, you know, immediately before it arose. And so, you know, sometimes it's it's just the fact that risk comes out of left field and affects different companies in different ways.

22:21 But if I was to look at the risk profile to our business today, then it's obviously radically less than it has been for virtually all of its history because we have now created a derisked strategy in which the royalty income on our relationship with Bridgestone is largely one way traffic now. And and whilst one might take a view about the rate of increase, some people may be more more bullish than others about the rate at which that royalty will grow. And in the remaining eight and a half year period, it's difficult to see any circumstances in which there is a, you know, a single catastrophic risk area that could affect the security of that income stream.

23:09 So I think we have now a radically derisked model. However, we're also mindful that we must not waste that opportunity, and that that cash flow coming in, some of which will certainly be surplus and return to shareholders in one form or another. It's also in the short term funding us priming the pump for the sole business. And and the way I've described that this morning in our board meeting was that, you know, we are still stretching the elastic back on the catapult, but at some stage, that catapult needs to let go and needs to generate a significant and growing income stream, which at some stage will overtake the royalty stream coming from our relationship with Bridgestone. And we're very mindful that making that investment in a controlled way, you know, that there will come a point when we are accountable for the results of that. We have a great deal of confidence in the ability of the technology and in the ability of this team and the team around us here at Western to maximize the return on that investment, but it is going to take a little time.

24:21 And just just to add to that, in the published accounts, you know, risk and uncertainties, I added an extra column this year, which was an arrow showing whether that risk has increased, decreased, or stated as it was. And if you look at that, three of those risks have decreased, which is the, obviously, liquidity because of the deal we do with Bridgestone. Brexit hasn't been as much of a challenge as maybe we could have anticipated. And COVID, that risk is decreasing as the vaccination program expands. The only risk that increased is the one that we've already discussed, which is the issues of supply chain. As I mentioned, we are, as best as we can at the moment, managing that risk.

25:09 Thanks, Norman. And a good follow-up question actually from Brian P, which is, are there any upsides prices hoped for over the next twelve months? I mean, that's that's that's an interesting question to answer because they'll no longer be surprises if we talk about them now. But but but I, you know, I understand the sentiment of the question, and I think, you know, there are certainly significant upside opportunities against the expectations that are in the market financially at the moment. And I think, you know, we take the view as a board that the value of this company fairly reflects the prospects for our business with ATMS, and it barely reflects the prospects of the business with Probe, but largely ignores the upside potential that we have in our sole business.

25:59 And I think that the moment that we're in a position to go public on the success of some of the programs that we're working on in the background now and and, you know, I I don't want to be a hostage to fortune by naming names or putting time scales, but there's a lot of very valuable work being done in the background. And we recognize that when we're in a position to go public and one of those is successful and that our technology is to be adopted by another major customer, then that will be recognized as an upside surprise and it's certainly something that we'd expect to see factored into an increase in the value of the company and its shares. That's the big breakthrough that we would certainly hope to announce.

26:51 Yeah. I'm gonna pause for another thirty seconds or so while I wrap up and just keep an eye on any further questions. But, you know, just to wrap up this session, obviously, you know, as I've said, it's only a few weeks since the last presentation, and it's only a few weeks, until the end of the year. But thank you, everybody who's tuned in, for your interest in the company. It's much appreciated. I hope you all have a a very pleasant holiday season, and stay healthy and stay happy. And, we look forward to updating you with the interims, in February. I hope you found the session useful and interesting, if perhaps a little unusual. That's great. Nigel, and thank you very much to the rest of the board for updating investors this afternoon.

27:39 Could I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide feedback in order the company can better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of TRANSENSE TECHNOLOGIES and the board, I'd like to thank you for attending today's presentation. That now concludes today's session, and good afternoon Till