Transense Technologies (LSE:TRT) — Investor Presentation

0:02 Good afternoon, ladies and gentlemen, and welcome to the TRANSENSE TECHNOLOGIES AGM update. Normally, we would be able to meet in person, and we would be able to ask questions of the directors. However, given the current restrictions, this is the best alternative, so I I hope you find it helpful. To start with, if we could cover a couple of housekeeping items And from start question then situated on the right hand corner of your screen with or if anyone has dialed in via transcentswarbrookpr dot com.

0:48 The company may not be in a position to answer every question today. However, the company will review all questions submitted and publish responses where appropriate. These will be available on your investor.me company dashboard. Finally, I'd like to remind you that this presentation is being recorded. I'd now like to hand you over to Chairman, Nigel Rogers and Chief Financial Officer, Melvin Seagal. Thank you very much, Tom. And by way of introduction, that was Tom Cooper speaking from Walbrook Financial PR, who we will introduce to you later on in the presentation. So welcome everybody who's been able to join us, and I'm very sorry that you weren't able to join us at what was a very sterile AGM this morning, which lasted approximately thirty seconds through having to be a closed meeting.

1:36 However, what that does mean is that shareholders unfortunately didn't have the opportunity for a a discursive q and a, which we normally try and encourage at the AGM. And so for that reason, we're providing this update now and an opportunity to take some questions. The format of the presentation, I'm going to start off with an introduction, and I'll include on that a brief recap of the strategy of the business for any people joining this presentation who are meeting the company for the first time. And if that's the case, I would certainly encourage more dialogue later if anybody wants further detail. I'm gonna take that section very quickly indeed. But then I will pass to Melvin to talk through the current year trading update that we published this morning at 7AM.

2:23 And then I'm gonna talk a little bit about the new commercial advisory panel and the work that we've been doing following the initial meeting last week and really just skate through the highlights of some marketing initiatives and investor relations initiatives that we've referred to in our statement this morning. And then I will pass back to Melvin to talk about the proposed capital reduction. I would imagine the presentation is probably only about fifteen minutes in duration and then we'll have plenty of time to take your questions which Tom will compare. So moving on then, many people on the call will have already seen this slide, and those who haven't will see a version of it in the L and B Capital research note that was published this morning.

3:09 This is an overview of the strategy of the business in which our objective is to innovate and develop new sensor systems, match them with commercially viable applications, commercialize them, and then seek to realize that value through income and or capital. As you can see from the slide, there was a capital realization a few years ago when the Intellisor sensor business was sold. And then more recently, the iTRAQ stream of income was turned into into a a license income deal through a licensing with Bridgestone Corporation of Japan earlier this year. We are still commercially active in surface acoustic wave and in TRANSLOGIIC, both of which I'll come on to. So this is a a quick overview of those two commercial business streams.

4:01 TRANSENSE TECHNOLOGIES has a very long pedigree as a designer or surface acoustic wave technology, which is a sophisticated device for the real time, extremely accurate, and extremely rapid measurement of torque, pressure, temperature, strain, or thrust, and that's suitable for applications

4:24 particularly in harsh environments or where performance monitoring and condition monitoring offer benefits to the user. And our second commercial business, TRANSLOGIES, is a designer and seller of industry standard tire inspection tools which are used by fleet managers for very rapid reading of tire pressure, tread depth, and other parameters which can then be directly transferred to their fleet management software using Bluetooth.

4:56 We've recently carried out a business planning exercise in Surface Acoustic Wave and announced that, I think, a couple of months ago, we were targeting the market sectors that you see on this page. Motorsport, well, we already have a strong relationship with McLaren and opportunities to try and migrate that technology into higher volume, high performance automotive vehicles. Aerospace and avionics where our relationship is well known with GE, where we are the designer of sensor systems that are being put onto the next generation of iTech engines on military helicopters in The US. Electro electronic power assisted steering is a very interesting application where we've had a number of opportunities over the years and one or two live projects at the moment.

5:45 And we see opportunities to migrate into automotive driveline also, especially with the rapid technological change in electric vehicles and hybrids, has happened to a large extent in passenger cars, but is still very much a live issue in off road vehicles, sports utility vehicles, yellow goods, and the like. Industrial turbines and hydrodynamic couplings, another interesting opportunity, again, through GE and others. And wind and wave turbine, an obvious application. So the these are the target market sectors that we've identified and we're now honing in on. And I'll come back to that again when we talk a little bit about the commercial advisory panel.

6:31 Our overarching investment strategy is to maximize shareholder returns through a mixture of income and capital through delivering sustained revenue growth in each of these three three principal technologies. ITRAP will take the form now of licensing royalty income over a ten year period and Surface Acoustic Wave and TRANSLOGIES initially through the sale of products and services, with every opportunity to look at licensing deals, particularly for surface acoustic wave in the future as well. As far as the investment proposition for today's shareholders are concerned, they're they're enjoying perhaps for the first time in many, many years a position of financial strength in which the business does actually have the opportunity to invest tactically without having to worry about the next fundraise.

7:21 But within our customer base, a very strong reputation for innovation

7:26 and lots of experience in commercializing know how and in forging industrial partnerships such as the one that we've recently negotiated with Bridgestone. And through the target market sectors, you recognize they're all global growth markets. In fact, the vast majority of our business is and will continue to be export business rather than UK market. And so we very much as a board think that this represents a strong inflection point as far as the future prospects of the business are concerned and the opportunity for investors right now, we think, is a very strong one.

8:06 I shall now pass over to Melvin to talk through the commercial update, please. Thank you, Nigel. We start off with trading things in line with management expectations, and I'll add some more color to that in a moment. However, before I do so, I have seen questions, probably on ADVFN, requesting clarity between the expressions management expectations and numbers in the market. Management expectations are based on my internal budget approved by the board, although in all honesty, our expectations are always to exceed those numbers. And the numbers in the market are independent numbers prepared by the Allenby research analyst. The two sets of numbers are not materially different, and that's because we both use similar assumptions when preparing them.

8:54 With regards to the numbers in the market, I would recommend you access the Allenby research note as their research analyst, Ian German, has spent, a lot of time understanding the company, and it's a very comprehensive note. With regards to the current trading, as is stated in the note, the trading to the end of November shows EBT roundabout the breakeven level, and I wouldn't expect that to change much to the end of h one. And that compares pretty favorably with the f y twenty EBT loss of 570,000 on continuing operations, so like for like. The numbers in the market don't actually forecast half year numbers, but the full year EBT loss in the Allenby numbers are around about 200,000.

9:46 And that then begs the question, which I will cover a bit later, is whether we upgrade those numbers. Moving on to SOAR and probe revenues, they're both ahead of last year as stated in the note. Both sectors have performed very well in h one. And in fact, to the end of the year, probe revenues are probably around about 80% of the full year total of last year. So we're very pleased with the progress we've made. Our budget indicates a dropping off of revenues in h two. That was mainly due to visibility at the time. I'm, however, confident that we can maintain good levels of income in h two for probes. And the new exciting SOAR cap in place, expect to see improvements in SOAR, although this will more likely be seen in f y twenty two than f y twenty one.

10:34 With regards to eye tracking truck numbers, we're marginally ahead of the expectations, but the good old foreign exchange rate moving from 01/25, which it was at the time we did the deal to, when I looked a little while ago, 136, which presumably anticipates a Brexit deal being completed. That's reduced the value a little bit, bringing it broadly in line with our expectations. This income source is expected to rise in h two and then experience some strong growth, as I've mentioned before, towards the end of the calendar year. The company overheads are being kept under tight control. And whilst I've seen some concerns about the cost of the SOAR cap, I can hopefully allay those fears by advising you that the r and d tax credit in one year would pay for six full years of the entire SOAR cap fees.

11:30 From a cash perspective, the monthly burn is greatly reduced, and due to the way the royalties are paid being one month after the end of the quarter, we will, the end of December, have three quarter roy months, royalties due to us. If I was to reflect this in my cash number, the burn for the first six months would be actually quite minimal.

11:51 In conclusion, the h one numbers compared to the numbers in the market for the full year trading do suggest a possible upward revision of those full year numbers. And whilst we remain quietly confident about h two, we wish to remain prudent at this moment in time, particularly as the COVID pandemic continues to hang over all of us. However, in the new year when we release the interim numbers or shortly after that, we could be in that unique position in the life of TRANSENSE to actually consider revising the numbers positively. And on that, I'll hand back to Nigel. Thank you, Melvin. I just want to put a little bit of meat on the bones of the commercial advisory panel. Melvin has mentioned that the cost of it is actually very modest, and that is indeed the case, especially taking account of the caliber of the individuals that we've been able to attract to the commercial advisory panel.

12:52 And

12:53 there's a selection of names here, and I know that we've already published brief biographical details, but the quality of these individuals is such that we're very pleased to have them on board. And they're the type of people who actually get involved in things that they are interested and excited by as much as for any financial reward. If I just talk briefly about some of the people whose names you can see there, then doctor Loudon is leading a light in wind energy and is particularly heavily involved at the moment in advising a number of US institutions on suitable technology for wind energy in The United States and the Pacific Ring markets, which are significantly behind the European market in terms of their level of adoption.

13:42 And he's an extremely influential individual who, COVID notwithstanding, would have spent much of his time in The US over the last few months. Ian Penny has recently retired from Ricardo, which is a major engineering consultancy business turning over 250,000,000. He was a very senior executive there and heavily involved in their diesel engine program an absolute

14:12 wizard in terms of his experience of automotive engines. Matthew Richards is electronics sales expert who sits on the board of Solid State PLC alongside me where he runs our manufacturing business within Solid State. And Matthew's credentials are predominantly in sales and marketing and especially with an emphasis on the defense electronics marketplace. And professor Carl Victor Schaller, as you might have guessed, is a a German national. He's a former chief executive of BMW Motorcycles and a former main board director of MAN Diesel. And, again, lives and breathes electronic and mechanical engineering in which he's extremely highly qualified and experienced.

15:01 There are actually couple of other members on the SOAR cap whose names we're not in a position to share at the moment. But the level of sophistication

15:10 of these people, the level of contacts, and the level of engineering skill and their ability to guide us commercially into our target market sectors, we think is going to take the company on an extremely exciting journey. After our initial meeting, our main activity at the moment is triaging the opportunities that we see in front of us and trying to set priorities as to which ones we ought to attack first and with the most the most gusto.

15:43 An extension of that sort of very direct selling activity, if you like, is the overarching marketing initiatives in the company to support that. Many of you will have already visited our brand new website, which was launched this morning and is a a massive improvement on the previous version, not only for investors but for customers as well. And one of the key parts of that, and it'll it'll go into our social media presence as it develops as well, is the sharing of case study information, which at the moment is relatively narrow, but we expect to be adding to that over the next twelve months or so. And in addition to directly targeting approaches to customers in our target sectors, we also have schedule of exhibitions and symposia to attend over the next year to attract new interested potential customers. So lots going on on the marketing front, but again, all at a modest and manageable cost.

16:45 I then want to talk about our investor relations initiatives. I mean, I I don't need to preach to the choir who are on this call that investor meets company as a fabulous platform for being able to connect with people, particularly people who might find it geographically challenging to get to a meeting in London even without a pandemic, never mind with one. And it's certainly our intention to continue to to use this platform for results presentations and for trading updates such as this.

17:17 But also through the website, you can now access the strategic research note that was published this morning by L and B Capital. I would really direct people with a strong recommendation to do that, not the least because it runs to nearly 30 pages and does actually in include quite a bit of the granular detail which we normally field in q and a, but sometimes find difficult to respond to on the basis of commercial confidentiality. But this research note, which has been written by Ian German of R and D Capital, is very insightful in a number of the areas that we'll be discussing. And then through the appointment of Walbrook Financial PR and I, I briefly introduced Tom Cooper who's on this call and will chair the q and a session for us at the end.

18:07 Walbrook are extremely experienced in investor relations and in supporting companies to stitch together all of the various initiatives that they have to reach out to both existing shareholders and new shareholders. And one of those devices

18:25 is that they also publish a two page high level research document which means that investors and even, you know, small private investors who might find institutional research difficult to get their hands on can at least get a a two page document which tells them what market expectation is in financial terms over the next three years so they can at least see what we're talking about when we talk about meeting expectation.

18:52 Finally, on the company website and independently through Wallbrook, you can register for investor alerts such that every time the company announces news, it you it'll be drawn to your attention. And I, again, I would encourage people to do that.

19:09 I'll pass back to Melvin. She I'm delighted to say that all of the resolutions were passed at the AGM this morning, so we're now in a position to move forward with the capital reduction. Melvin will talk through this page before we take q and a. Thank you, Nigel.

19:28 As we move from being a perennial loss maker towards breakeven and hopefully profitability in 2022, it made a lot of sense to go through this exercise of a capital reduction facilitating the future payment of dividends and or the buyback of our own shares. So the proposal is as listed there, the cancellation of the deferred shares standing at 3,800,000, the cancellation of share premium account at 2,600,000. And taking this into account and adjusting the f y twenty balance sheet, this would leave us with distributable reserves of roundabout 500,000. And if we continue the breakeven that I mentioned before, we would this would be the position as at h one f y 21.

20:14 As Nigel said, the motion got approved this morning at the AGM, and we would expect full approval on or around the 01/27/2021. In conclusion, this is a very positive step from a very positive board, and I'll hand back to Nigel. Thank you, Melvin. Before I hand to Tom to compare questions, I'm I'm just gonna take one question, which is almost bound to arise, if it hasn't already, and that is when do we expect to start paying dividends or buying back shares? And the answer is that as we said in the circular, we don't have any immediate plans to do that. It's very heartening to have the capacity, particularly to look at buybacks over the shorter term, which are more likely to be a short term action rather than beginning a progressive dividend policy.

21:12 But we will keep that under constant review. And particularly when buyback opportunities arise, then we will certainly look to take them where we think that it adds value to the remaining shareholders. So with that, I'd now like to pass to Tom. Tom, I know that you've grouped together some questions, and I'm looking forward to hearing them. Yeah. Thank you. Thank you, Nigel. Thank you, Melvin. So if we can turn to the questions, before we do that, we do a number of questions that were submitted ahead of the presentation. Please do continue to submit your questions using the Q and A tab situated on the top right hand corner of your screen. I would just like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via your investor dashboard on the investor meet company platform.

22:07 Additionally, your feedback is important. So immediately after the presentation has ended, you'll be directed for the opportunity to provide that feedback. And if you could, that would be greatly appreciated. It means a lot to the company to be able to see what your thoughts are post the presentation. But while you're submitting questions, let us first have a look at those that were submitted ahead of the event. A couple of them are quite granular in their request for financial information in terms of revenues and licensing streams. And I would, as previously mentioned, point you towards the L and B note, which actually details that extremely well and in a way that we can't necessarily address on this platform now, albeit that clearly the interim results are not that far away, we will be making reference to some of the financial metrics at that point.

22:57 And I I I mentioned just Dion and also Peter just in that because there were some specific questions that you answered which asked which we won't be able to answer. But looking at Bridgestone as as a topic, there are a number of questions you'll be unsurprised to hear around that. Nigel, maybe I can just group a couple together for you, and and you could just update as far as you're able. Yeah. John John has asked a number of questions, one in particular was around Bridgestone's strategy to maximize the synergies with with Webfleet, iTrack, and the new DX area. Could could you expand on that slightly? And his question also includes what you understand the DX area to be.

23:44 I I think that that is another IT solution software based product within the Bridgestone stable, which is not directly related to iTrack. But I think to answer the the more general question on Bridgestone, you know, it is very clear to us and very clear to anybody who has visited their website that their strategy as a business is to build on a company that is the market leader in rubber. They recognize that that is their core business from which they generate their main income. But to invest that income into data solutions and increasingly move towards the data solutions business, which customers will view them as a service provider in addition to being a product seller, is clearly the key plank of their of their strategy, and it's quite clearly laid out in their quarterly strategic presentations.

24:46 And the licensing of the iTrack technology was a very key part of that for some of their major market sectors. The obvious one being mining where we had already achieved penetration in the mining sector, and therefore, that's, if you like, the low hanging fruit. But there are doubtless other applications in the heavy side off the road parts of their business where iTrack may well provide solutions further down the road. Now that's gonna be a product development project. It's not going to be an instant hit, but I'll be very surprised if they don't view iTrack as a technical platform which is capable of being used outside of only the heaviest mining vehicle.

25:33 And I think that that's a story which may well develop over the next two or three years. Again, investors that are interested in TRANSENSE will also be interested in registering with Bridgestone to get alerts on their news because despite the relatively small size of iCrap relative to their business, it has great strategic importance, and that's quite clear from their own presentations, which quite often provide information. Okay. Super. That that that's comprehensive. And and John John also asked about other markets, and I think you've I think you've addressed that there. So so thank you. In terms there are a number of questions around SOAR. And Tim, John, and Jonathan have have all asked questions, which maybe we can just group together.

26:20 Tim's asked whether there are ambitions to further develop SOAR technology and whether you envisage that most of that development will be in hardware or software components of the product. John's asking about penetration of new markets and competition within new markets. Jonathan has asked whether you can comment on the use of SOAR within wind turbines. Where are they based and and how and what do they measure? So a little bit of a chat around SOAR if you could there for us, Nigel. Yes. Of course. I mean, first of all, a a generic chat about SOAR technology, and then I'll move that specifically into wind turbines. So the principal challenge with SOAR technology is is neither hardware nor software, actually. It's it's application specific, and it is enabling the SOAR devices to be bonded and calibrated in such a way that they can be used to generate reliable data.

27:23 And so matching the technical challenge of the application with the characteristics of the device is actually the the single biggest factor in matching a substantial commercial opportunity on the one hand with a narrow technical challenge on the other. And so it's in this area where matching opportunities within the target market sectors, which are commercially exciting with the technical challenges of making sure that those applications are feasible. It's that it's that matching process that we're currently undergoing in a number of those sectors that we answer that that that we refer to. Now, of course, in motorsports, it's already done.

28:08 But in that particular scenario, the shafts to which it's bonded are very high precision and fairly low volume and fairly small and manageable. And so bonding the device is relatively speaking not that technically challenging in order to get very high accuracy. But if you try and do that in a wind turbine that's 200 meters high sitting out in the North Sea, the challenge is somewhat different because of the size of the shaft, because of the relative lack of precision in the material that the shaft made of such that it actually has quite a lot more variability one to another than a Formula one car or an or an Indy car. So this is the area of exploration which we are undergoing as a team in order to match those applications where we think that the commercial opportunity is the greatest relative to a technical challenge which is achievable and achievable at an acceptable cost in terms of project management.

29:12 And and I and I touched on wind turbines there. We have had some success with wind turbines before with Siemens wind in Europe. But the biggest challenge that we had was calibrating the device so that it could be used across a range of wind turbines where actually the characteristics of the shafts to which it was bonded were quite diff different. So, you know, to exaggerate the point, it's quite difficult to measure the torque on a rice pudding. And so, really, that's, think, a a fair assessment of where we are with our commercial advisory panel in terms of triaging opportunities against technical feasibility.

30:00 Great. Okay. Super. Moving away from product, we've actually got two question areas. First is is in and around the market, which I might just ask you about if that's okay. Simon has asked, why do you think the market significantly undervalues the company given the evident opportunities? And and there's another question which does tie into that a little bit, which is the share turnover is small, but my impression is that there are one or two sellers potentially selling to any strength. Do you have any idea who they are? And is it possibly is it possible that there are people who moved with iTrack who are selling their TRT holding? Yeah. Again, there's a a a general answer and quite a specific answer there. So I'll I'll answer the general point first.

30:48 The market undervalues our company at the moment in my opinion because a, it's very small relative to some of the investments which institutional shareholders would look at. And so it it doesn't come onto the radar screen for some simply on by virtue of size. Secondly, the share register at the moment, one might describe as being a little stale actually because I think that we have connected very well with existing holders and most of them are quite happy to wait and see. And, therefore, there isn't much stock available to attract new investors in any meaningful size. And so, you know, my own opinion is that once we start to deliver meaningful financial results and people can see solid progress in the figures, then I think that will take care of itself. But right now, at this relatively early stage, there's a lot of thin trading, and that leads me on to the second question in terms of, you know, who is the seller.

31:52 And but, of course, the directors do know who are buying and selling shares, usually four or five days later when we see the move on the register. So we are able to identify who buyers and sellers are, and we'll occasionally reach out to sellers, particularly if there's an opportunity to bid them out if that's what they want to do. Generally speaking, it would only go into the public domain if if a a shared transaction was taking people above or below a threshold whereby they have to announce that they bought or sold shares, and I think it's some time since that happened in this company. So frustrating though it is, if somebody is providing liquidity and it's putting a lid on the share price, then we simply have to keep battling on and delivering results. And at you know, at some point, that will take care of itself.

32:47 Super. Okay. And I think a a topical question to finish on, but but it's Brexit, obviously. What are your Brexit risks? Perhaps I'll ask Melvin to take that one. Yep. Thank you. Brexit is obviously a challenge. There's there's two elements of it. There's the logistical side of it. If the ports will get blocked up, And, obviously, there is the duty side of it. We've actually, one of my other roles is a a non exec of a very successful fashion business, and we'd spent a lot of money looking at Brexit and considering investing in companies that are would would remain in the countries that will remain in the EU. A company of our size can't really do that to set up another company outside The UK and staff it, etcetera.

33:40 Basically, we've looked at the WTO terms and the sort of margins that we make if we're looking at probes, which is mainly the business that would be affected by it. The sort of margins that we would make either trading with Europe or outside of Europe would cover any duty that would be incurred in changes that arise of us leaving the EU and trading under WTO terms. So we don't believe that it will have a very large impact on TRANSENSE as it stands. Absolutely right. I would just add to that that the vast majority of our sales are outside of Europe as well. And we're we're well used to working on WTA to to your terms in the Pacific Rim and The United States also and elsewhere.

34:33 Great. Super. Okay. Thank you, Willa. Thank you both for for updating investors today. Could I ask investors not to close this session as you'll now be automatically directed for the opportunity to provide feedback? And if you access this meeting from our website, the feedback page will appear. If you access from the link sent by email, you'll be asked to log in to submit your feedback. And if anyone has any further questions or would like additional information on TRANSENSE, please do get in contact via transcentwarbrookpr dot com. I would encourage you also to go to the new website in the Investor Relations tab. There's lots of information in there and as discussed, the link to the L and B notice there as well. But many thanks for attending today's presentation, and I hope we will see you again soon.