Transense Technologies (LSE:TRT) — Trading Update

0:01 Good afternoon, and welcome to the TRANSENSE TECHNOLOGIES PLC Trading Update. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and they can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Just simply type in your questions and press send. Before we begin, I would like to submit the following poll. And I would now like to hand you over to Chairman Nigel Rogers. Good afternoon to you.

0:26 Hello, Alex, and thank you very much for hosting today's session. And thank you to everybody who's joined. I think we had about a 100 people indicating their attendance. We've got about 30 online. I'm sure the rest will look in later. So good numbers. Thank you. And first of all, I'd like to start by saying, naturally, I would be prefer to be sitting here with our numbers in line or above market expectation. And clearly, that does somewhat cloud the other very good news that I think we have in the trading update. I think most people will see it as a bit of a mixed bag, but there are some real positives in there. But, obviously, you know, one needs a bit of humility against the backdrop of the numbers being a miss relative to expectation. I'm just gonna put camera off and progress. What I'm going to do today is run through the the outline of the trading update, which was published at 7AM yesterday morning. I'm sure everybody's had a had a chance to read it, so I won't go through this in a lot of detail. But I just have two slides summarizing it to provide a little bit of structure, and then I'm gonna move straight to questions.

1:31 I would imagine I'll only be talking for five or ten minutes, and I'll move to questions. We've got about 10 questions presubmitted, all of which I'll be able to deal with. So first of all, you know, an overview of what was said yesterday in our trading update. Update. So there was a slight downgrade to the numbers. The numbers were downgraded, you will recall, in February 2026. And, unfortunately, there was a small miss against those revised numbers. Revenue will be about 90% of those numbers with slight miss on both Source Sense and TRANSLOGIES, and I'm gonna explain the reasons why and the work that's going on to rectify that in FY '27. Adjusted EBITDA will be around 80% of those numbers, and adjusted PBT will be around breakeven.

2:16 So this is not a disaster. You know, the company is slightly short of where we expected to be by the end of the year in financial terms. But underneath the bonnet, there is a lot of very hard work going on and some successes which I'm going to be talking about as we go through. The main reason for the miss was continued weak demand from the tire majors within TRANSENSE TECHNOLOGIES. I will say a few words on that, and there's also one or two pre submitted questions which I'll answer on that topic. But that is the primary difference between the figures that we expected to see when we upgrade revised the numbers in January and the numbers which came through towards the end of June. But there have also been some delays in the conversion of development projects within SourceSense, particularly moving from feasibility stage into full scale paid development work, and I will talk a little bit about that process as well.

3:12 However, you know, iTRAQ figures are unaffected, so the Bridgestone iTRAQ revenue is still very solid and obviously convertible into cash on a quarterly basis. The cash position for the business is healthy. It's been managed on the basis of maintaining a million pounds worth of cash headroom from a safety point of view, and you'll have seen the numbers at the end of May, which we put into the trading update confirming that that was the case. Because it's the quarter end at the end of June, the the I BridgeTruck Bridgestone iTrack royalty for q four isn't collected until July, and most of the grants are on quarterly collection as well. So there will be a slight dip in gross cash for the end of June, but it'll be rectified by the end of July.

3:59 And we would expect to include both of those numbers in the final results presentation in September so you'll have visibility of the actual numbers when they come. Looking at SourceSense, firstly, both GE Aerospace and McLaren Applied for the t nine zero one program and for motorsports have actually gone well during the year. The revenue has been pretty strong. Again, when when we publish the final results in September, you'll see the analysis of revenue by type of business, and you'll see there that the component sales and the production sales within SourceSense are pretty good. But within the development area, it's really the transition of feasibility study clients into full scale paid development, which has been a bit sluggish.

4:48 What are the reasons for that? Well, of course, they're pretty application and customer specific. But speaking in more general terms, I'm sure the macroeconomic and geopolitical environment isn't helping. You know, big companies are being a little bit more cautious with allocating and spending their r and d budgets. And also testing times for receiving prototypes and then putting them those through test and then determining that they want to progress into development and allocating a budget is simply a slow process in big companies, and it's very difficult from our point of view to be able to predict that that visibility with high confidence. And so for that reason, unfortunately, we've slightly missed those numbers. On the positive side within Source Sense and there's some positive commercial things to talk about on the next page, but in terms of operations, the pilot production line procurement is now complete, and the equipment is all up and running and being used in anger.

5:47 We're finding some extremely good results from process control testing and test and validation of production parts. So all of that's going well and giving us some very positive feedback in order to feed that into customers for future production use. So overall, very happy with that part of the business. Flipping to TRANSLOGIES, actually, the new business generation on the conversion of new customers has been very good in the second half of the year, but it has been masked by the downturn in tire major spend. So stripping out the tire major spend, in fact, the remainder of the business has grown by about 50% during the year, but that's been masked by a downturn in the tire majors. Again, when the final numbers are audited and available, we'll be showing an analysis of that when we release final results in September.

6:40 There has been a significant change within TRANSENSE TECHNOLOGIES in terms of our sales organization during the year. We made a key hire at the start of the year, and the primary objective of that was to build a secure pipeline of high quality customers in order to give us far better visibility without being reliant upon the legacy business from the tire majors. And that has been very successful. The new business growth, as I've already said, has been good, and we expect to make some new breakthrough contract announcements over the next few weeks where that cut pipeline is now starting to mature into real business. Turning to the outlook for FY '27 then. The board remains confident of the medium term prospects for the business for FY twenty seven to thirty and, of course, beyond. I know and I fully understand that there are concerns around the further reductions and then the end of the Bridgestone iTrack royalty, but the board are very much mindful of that and are building a strategy around the business being in takeoff mode long before we reach the end of that runway.

7:49 We have several significant programs at an advanced stage, both in TRANSLOGIES and in SOURCENCE. Some of them, you know, at a point where terms are largely agreed and awaiting signature and announcement. So between now and the results in September, you should expect to see greater news flow than you've seen over the last three or four months. We anticipate being in a position to announce some of those contracts with customer approval by name also. Having said that, the board has also heightened the degree of prudence that we've steered the market towards based on recent experience. You will appreciate it's no fun sitting in this seat and having to do what I'm having to do today. And we are determined now to try and bring our forecasts more in line with the business that is actually firm and visible to us in order not to be a hostage to fortune to customers telling us, I beg your pardon, customers doing what they've told us they're going to do at the time that they're going to do it. And so I I think we're we're entering f y twenty seven with a higher degree of confidence that the numbers are achievable rather than a stretch.

8:57 From the board's point of view, I I I also want to reassure people that we're very much focused on adjusted EBITDA as a KPI, essentially cash profit. That is a proxy for cash generation. And as the depreciation and amortization charge in the business increases because of the increased investment and asset base that we've made, then EBITDA is a key measure for us to be confident of our ability to finance the business, including the increase in working capital necessary to increase revenue and to continue to invest in the business in the development of new products and componentry. But our financing strategy is to maintain approximately a million pounds of cash headroom in order to make sure that we're also cushioned against any surprises.

9:45 So with that said, I'm now going to flip to questions. So we had nine presubmissioned questions, which I've had an opportunity to curate. So I'll take those first, and then any questions that have come in live, I will be able to pick up when I'm finished that. So first of all, I want to move to talk a little bit about TRANSLOGIIC. Generally speaking, the questions previously have had names on them, and I do like to give people a shout out. But in today's seminar, I can't see that. So here we go. So question. In TRANSLOGIES, do you know why there is a reduced demand from global tyre majors? Is this any is there anything that you can do to address this?

10:31 Well, the primary reason for reduced demand from the the legacy business tire majors is because it is largely they've largely used our products in their managed tire business. So for managed tire contracts where they're charging customers by the mile or by the kilometer rather than selling them tires. And that part of the business has been very challenging for all of the traditional high quality top end people that we deal with, the Bridgestones, the Goodyears. Those customers have found that marketplace quite difficult because they've been attacked by low cost competition. And for that reason, they've been consuming less of our tools. So what can we do to address that? Well, reduce our reliance on that business, and that's really why we pivoted the sales strategy a couple of years ago to look for much more direct business and fleet service business and sell through distribution into overseas markets.

11:28 So we we took a number of initiatives to grow the nontire major business. We recognize that with the tire majors, we actually have poor visibility of revenue. It's a transactional business, and it's very difficult to get them to commit to long term commitments for the type of product and the type of use case that they're using. And therefore, we have pivoted that by growing the business outside of the global tire majors. I'm just gonna quickly see if there are any more questions on TRANSENSE before I pivot. So excuse me one second.

12:05 Right. I'm gonna pivot now into SOAR then. So I have three or four questions submitted on SOAR. Firstly, In SOULCENSENSE, do you know why customer commitment to short term nonrecurring revenue, NRE costs, is slightly slower than anticipated? I think perhaps I've already covered that, but essentially, these are decisions being made by big corporations and they take their time. It surprises us always. You know, in in some cases, projects could have been completed in the time that it takes a big company to raise a PO, But I I don't think that that's unusual. I don't think it indicates any lack of commitment on behalf of the customer. It's simply that processes take time.

12:52 As I've said, I don't think the macroeconomic environment in which people are perhaps a bit more risk averse helps, but neither do I think that it's any indicator of a lack of commitment to our technology or, you know, any any indication that they won't progress through development. I'll move on to

13:14 please, can you outline on SOAR if you're undertaking work in anticipation of NRE purchase orders being ultimately submitted? If not, could you broadly describe how you are utilizing the resources of the team during this lull in customer projects? That's a really good question. So the answer is almost exclusively, we don't do work at risk. So generally speaking, we wait for customer purchase order cover before we begin projects. There are occasions when we will do that based on an r and d team committing that a PO is coming and the paperwork hasn't caught up, but that's comparatively unusual, and I don't think it has a material effect on our numbers. So that leaves us with a team of people who are busy mostly on two things.

14:02 Firstly, internal research and development work, particularly applications development work. So some of our work can be quite generic and gives us an opportunity to approach a particular marketplace. Robotics, for example, has some generic challenges which our internal team can work on either customer funded or unfunded with some generic benefit to ourselves. Sometimes that's capitalized often. It goes to p and l. The second area is grant fund grant funded projects where typically a significant proportion of our costs, typically 50 to 70% of our costs, can be recovered by making grant claims. And so when the team are dedicated to that work, it has some enduring benefit to our business.

14:51 But in terms of the actual recovery of revenue to time, it's at a much lower rate than would normally be chargeable in a commercial environment. Next question. In the half year results, you pointed to a number of contracted customers where production revenues were anticipated in SOAR from '28 onwards in industrials and EMD. Please, could you outline if there's been any slippage in these expectations since? I think it's clear from what's written in the trading update, and I think I've reiterated that today. We don't see any slippage in the production date simply because there may be a few weeks of slippage in turning a feasibility into a development. So we continue to have confidence that the work that we are undertaking will progress to production. It's one of our key criteria in accepting a project is that we believe that it has realistic chances of production success, and we're not at the moment seeing any reason why we ought to see slippage in those time scales.

15:53 Okay. And I'm just going to look at the live questions and see if there's any foresaw before I move on. You've said Source Senses continue to build development pipeline with earliest production dates in 2728, continuing to be a realistic goal. What types of opportunities could move in that time frame? Well, I think, you know, within that time frame, I would certainly rule out significant new aerospace business. Motorsport business certainly can, and robotics and some automotive and consumer product also can move within that time scale. So I I would say, you know, most of the segments that we're involved in are capable of moving in that time frame, not mainstream production automotive and not aerospace.

16:51 Nigel, can you say more about sole progress with robotics customers? We have doubled the number of robotics customers over the course of this year and that are already beyond the feasibility stage. We have some really interesting and high quality customers in that area. I think we'll be saying more about that in September in the full presentation. I don't really have the time to cover it now. Is the pricing structure of SOAR similar across the different market segments? The answer to that question is no. It's not. Our pricing is generally flexible and depends primarily on volume, but also on the degree of overhead cover that is required to fulfill quality objectives, for example. So something which is going on an airplane would be a lot more expensive than than something that's going into a high volume consumer electronic drive application.

17:57 SourceSense, in the update, you said that the robotics, especially, are moving towards production. Please, can you provide an update on the work that you're doing? I I think I've already covered that, and we will certainly be covering that in some detail either in September or before. Could you talk about the in house production line and if the quality and volume of output is in line with the expectation of potential customers? The answer to that is in two parts. Firstly, quality, certainly, yes. We we we do believe that the processes that we've embedded into the pilot production line will be suitable to be able to translate into high volume production. In terms of volume then, you know, you'll recognize that the pilot production line is deliberately built to be flexible and to cope with many, many different varieties of workpiece, different customers, different volume, and different applications.

18:49 So it's deliberately built to be flexible. So the individual stations within that unit will be capable of being lifted and dropped into a high volume production environment by a customer who might be making hundreds of thousands of a homogenous product and would want to have a different configuration, but they would be using the same essential processes. So cleaning, bonding, wire bonding, you know, all of the things that we are doing in house are translatable into a high volume environment, but they might be configured differently from a material handling point of view. Right. I'm now going to move into TRANSENSE TECHNOLOGIES. Sorry. I've dealt with that one. I beg your pardon. I'm gonna move into forecasting and cash now then. So question eight, the reduction in revenue expectations from the 5,000,000 stated earlier in the year is quite material, especially as the US dollar exchange rate has strengthened. Other than the orders from the tire majors in TRANSLOGIES, what had you not anticipated at that time?

19:57 I think I've largely covered that. I think the Bridgestone iTrack was pretty much as expected. The tire majors in TRANSLOGIES was the primary reason. The slight slowdown in progress through feasibility into development was a significant part within SOAR. I think I've probably covered that. But I'm going to pick straight up, and while we're on forecasting, I'll look at question nine. In SOAR, how much are forward revenues in 2026, '27 underpinned by grant income, the GET nine zero one project, and motorsports? The answer to that question is about half about half of the market number on a sensitized basis.

20:42 On an unsensitized raw basis, then, you know, our forecast is probably double what the sensitized number is, and then it would drop to a quarter if everything came home all the time. Wouldn't that be a good world?

21:08 Key question. Can you confirm that the company has sufficient cash headroom to reach the first production contract announcements without requiring additional equity financing That is absolutely consistent with the board's strategy. I I would be a fool to say it's absolutely not going to happen because I don't wanna make myself a, you know, a hostage to that fortune, but it is very much our plan. We've stuck to that plan consistently. We've indicated that we're maintaining a million of cash headroom and gross. That is our intention to continue to do that. So we'll have to be judged on our actions. The first opportunity to judge those actions will be when we release the final results in September, which will also have the up to date cash numbers and the firm year end cash numbers in them.

22:01 Given the company's aim to maintain around a million of cash headroom, has the board evaluated monetizing the Bridgestone iTRAQ royalty stream through factoring sale of rights or similar as a source of nondilutive capital and an alternative to an equity raise? That's an interesting question. Yes. The board has obviously given consideration to the fact that that is a possibility. I'm I'm gonna use an analogy of an airplane going along the runway here. We don't want to raise money to lengthen the runway. We've had a good run at this, and we don't want to raise money to lengthen the runway. If we were to monetize the Bridgestone royalty in that manner, then we'd be shortening the runway. I don't think that's particularly attractive, although it's something that we can leave leave in our armory.

22:49 What we want to do is get this airplane to take off with what we have from the resources that we have available, with the people that we've got, with the pipeline that we have in front of us. We believe that we've got enough lift to take off comfortably for before twenty thirty. When we're in the air and we're flying, then I think we'll be at a completely different valuation, and that then may be a time when we might consider raising capital at a far more attractive price without being dilutive, but it's not our intention to do that before that point. And if we're not blown off course, then that will be the way that it is. Next question. I confess I've not re I've not preread some most of these questions now, so I'll answer them when I can. Given the longer lead times for contract conversion, could you please give a little insight into the commercial traction for robotics?

23:48 I'm sorry. I'm I'm I'm reading a very detailed question here. We will certainly be covering all of that in the full results presentation, but I don't have the time to do that now. I'll I'll I'll only answer that question by saying it's consistent with our expectations the last time we spoke about it, and we think that we will have more positive developments to announce. What would be the cash flow generation x I TRT? I'm not gonna do the maths on the hoof, but you will see that it is cash negative. And that's the reason why we're setting out our growth plan to be able to use my analogy and and take off from the runway long before it it runs out. There's a couple of questions that are a little repeating themselves now. Just on SOAR, you've said the pilot production is progressing well.

24:42 Has that created interest with customers, and have there been potential to demonstrate? Yes. Indeed. And I think it's fair to say the operations within TRANSENSE have been radically transformed over the last three years and particularly over the last twelve months. I don't think that's just about equipment. I think it's about people as well. We've hired some very impressive engineering and production talent. And when we bring both shareholders and customers around the business, they're very impressed with the next generation of people as well as the equipment that we've bought, and those people are absolutely key. And I'm delighted with the recruitment decisions that we've made, And those people are a credit to the company when they stand up in front of customers.

25:31 Will you need to slow investment in the business now your forecasts have reduced in order to preserve the million cash buffer? You know, the the frank answer to that is we will certainly need to be, as ever, frugal with money. The primary areas of investment that are left in the business now, the fixed capital is largely done. The primary levels of investment, I think, are threefold. Firstly, completing the next generation components for SOAR in order to be able to hit cost targets for high volume production, and that will take place during f y twenty seven. It's quite costly, and we are having to be very careful with money in that area. Secondly, new product development for TRANSLOGIES. You've seen we've two made two very important product launches already, and we have further product development in the pipeline.

26:19 But much of that is done in house, and it's done at a a relatively low cost. And then thirdly, working capital to support ramping up the business, and that will be largely in the form of receivables, and we'll be we'll be able to finance that out of the growth in the business. I think I've answered question 17 as well there, please. So last question, unless there's any fresh ones, is there a WhatsApp group for this company? I don't think there is at the moment, but we do have a lot of social media presence. Most of our material is put out via LinkedIn, and you'll find a very active, almost daily LinkedIn posting from the company. We also maintain a register of shareholders who've expressed an interest in being kept abreast of events.

27:09 So anybody who wants to send an email to [email protected], We'll be very happy to add you to our database, and that includes invitations to sessions like this. But it also includes occasionally personalized invitations to come to the facility as well. So we're always very happy to hear from shareholders, but WhatsApp isn't our preferred route. We also do keep an eye on ADVFN, which is a very active bulletin board, and that does help to give us some indication of informal feedback from shareholders to make sure that we address that in our communications. So I think that's all we have for today. Unless there's any fresh questions, I'm just gonna pause for one or two minutes.

27:59 No. So thank you very much for joining. I hope that your questions have been answered to your satisfaction, and I hope that you've heard what you want. I I hope that I've been able to convey that I still personally feel very positive about this business. You will have noted that over the months and years, the directors have consistently bought shares, and Ryan has indeed added to his shareholding this week. He's currently at a robotics trade show in Chicago, and I gather that that show is very large and very busy, which is good. So, you will be able to see he and I, with the results presentation in September. We'll be very happy to keep in touch with you in the meantime if you reach out to us. But otherwise, we look forward to giving you a more comprehensive update then, and I hope you found this one useful.

28:45 Good night. Fantastic, Nigel. Thank you very much indeed for updating investors today. Could I please ask investors not to close this session as you now be automatically redirected to provide your feedback, which will help the company better understand your views and expectations. On behalf of the management team, we would like to thank you for attending today's presentation, and good afternoon to you all.