Discover the Transense journey in this entertaining podcast with In The Company of Mavericks

I have to ask you did you consider changing the name of the company at any point no because my own belief is that everybody just says oh that's the one that used to be called transen absolutely yeah good answer the following is for information purposes only and should not be used as the basis of an investment decision this is not investment advice this episode is made possible by Progressive equity research providing freely available engaging investment research and opportunities to hear from a wide range of small and midcap UK listed [Music] companies I sit on the investment Committee of the aim listed onward opportunities investment fund managed by dowgate wealth and I have a personal investment in onward dowgate group owns 9.26% of transcend Technologies PLC of which onward opportunities owns 6.96% last year onwards fund manager Lawrence Hol proposed an investment in transcend Technologies my initial reaction could best be described as having a Victor meldrew moment those with stock market memories may recall the trans sense has a history of failing to meet its ambitious plans and targets and repeatedly returned to investors to back its innovative sensor Technologies in 2007 trans sense had a market cap of over 60 million and forecast revenue of £300,000 its exciting disruptive technology surface acoustic wave or soore was destined to achieve widespread adop in the automotive industry however this didn't happen and instead transcend developed a well-earned reputation for serial stock market underachievement as the legendary investor s John Templeton said the four most dangerous words in investing are This Time It's Different with these words in mind on today's episode I am joined by Lawrence to hear how executive chairman Nigel Rogers and man man in director Ryan mour have repositioned this failed aim-listed Blue Sky growth stock of the early 2000s it's a fascinating case study of how UK listed micro cap companies can become forgotten and ignored as recovery strategies are implemented and latent value is created as Nigel mentions the aim Market is sometimes far from perfect today trans sense has a market cap of Just5 million and is only now beginning to exploit Saw's true potential in areas such as Motorsports EVS Aerospace and Robotics following an Innovative licensing deal with Tire giant Bridgestone that is effectively underwritten the business's foreseeable future transcends today is led by a combination of Nigel's experienced financial naous and Ryan's proven engineering credentials and entrepreneurial instincts in this episode we learn how transcend Technologies has been right sized and can face the future on a firm Financial footing giving it time to exploit opportunities in Saw and its Tire measuring device business translogic please enjoy conversation with Nigel and Ryan of trans sense Technologies and why this time it's different brought to you by Progressive Equity Nigel and Ryan thanks so much for joining us today can we begin just with you telling us about yourselves and your respective Journeys into transcend and what it is today and I speaking so I started life as chartered accountant spent my 20s working for price water house and then discovered you fairly late on in my 20s at which time I was running a small office in muskat in Oman that I enjoyed running the business more than I enjoyed being a childood accountant that led me to get my first proper job in Industry firstly as a CFO and then progressing to group CEO of two a listed engineering businesses I spent most of my 30s and 40s running aim listed engineering business Stadium group PLC and then 600 group PLC and that landed me in my sort of early 50s going back to 2015 now looking to move into a plural career as a non-executive director in the same space and the opportunity to join the board of transcend came up fairly early on in that plural career you know I was immediately attracted by what is a very interesting story although you know it's fair to say as you say in your introduction some quite significant Legacy issues which I'm sure we can delve into but you meanwhile that has been a very exciting Journey since 2015 and particularly what I've often described as The Rebirth of the company in the summer of 2020 and again we can delve into why I say that later on in the podcast my name is Ryan mour I'm an engineer by background so brought up to dislike accountants and lawyers but um Nigel's all right so um I do talk to him my background is I started my career in the Motorsport industry worked there for a number of years did some really fun and exciting things but then kind of realized that it wasn't going to be a long-term career for me so as my mother likes to say I got a proper job working in Industry as an engineer in a business did that for a few years was a really exciting time then set up my own company so this is 2004 2005 a business was called Avid technology developing sensor systems and control systems and electronics for electric and hybrid vehicles grew that business sort of startup Journey you know very bumpy had some look early on getting some contracts with some vehicle manufacturers like JCB and and others sold part of the business in 2012 so we span out the sensor company to continenal the big German tier one set up a Battery Systems business called hyperdrive out of avid continued with Avid and really sort of rode the wave of the electric vehicle Revolution so life changed massively in about 2016 where we went from getting thrown out of meetings and laughed at for suggesting electric vehicles were a good idea to everyone wanting to be our friends and knowing that it had been a good idea all along and the business really transformed into what became very credible to1 supplier to Automotive companies including likes damler and Volkswagen group and caterpillar kamatsu and on and on had a fantastic roster of customers ultimately I sold that business I exited the company as part of the sale and then I embarked on something of a plural career I got to know Nigel through Avid and he invited me to come and look at this interesting company called trans sense and it was amazing I was immediately drawn to the technology being you know an engineer and and a bit of a geek but the thing that kind of intrigued me the most was why have I never heard of this before and fairly quickly started to think you know if I had known about this 10 years ago I could have made much better electric Drive systems and that sort of got me over the line Nigel got over the line to join the business can we just come on and talk about the structure of the business today and we'll come on and talk about the specific technolog is involved in a moment I think in order to understand the structure today it's worth just first of all delving back to the rebirth of the business in June of 2020 when I joined the board in 2015 the company essentially had two technologies surface acoustic wave saw and translogic which is a business which has sensors and a product range to measure tire pressure and tire tread depth each of those had an important subset at that time in 2015 the saw business had a subset called Intellis saw which was specifically using surface acoustic wave to measure temperature inside electrical switch gear and trans logic had an important business inside it called itra which was using tire pressure and tire temperature data to measure the performance of mining whole trucks in huge open cast mines the size of a small City they were both very interesting businesses to me in 2015 however by the stage that I joined the business and part of the reason I was invited to join as a non-exec was that the company had already done half a dozen Fund Raisers over the previous 12 years or so had raised about 20 million pounds and had for that some extremely valuable but unexploited patents in surface acoustic wave and 20 million quids worth of tax losses that was essentially where it had got to and what it needed was some credibility in the boardroom from somebody who'd spent years doing what it said on the tin in the a listed Market to be able to reassure investors that the money would be well spent on a further round of funding at that time intell usur was up for sale it was being actively marketed and a few months after I joined the board we actually sold that to Emison for about $5 million so at that point the company really had adequate funding to start to exploit its other business streams and by June of 2020 much of that investment had actually been plowed into the IT business which was by that stage Market ready and had already managed to establish a small but important market share but most importantly a huge technical lead in the mining Hall truck sensor business and by June 2020 that business was ready to be spun off we had been using Bridgestone obviously one of the largest tire manufacturers in the world and the market leader in the mining Market we'd been using Bridgestone as a a channel reseller for the it system and they decided that they wanted to actually take control of that business through a transaction which I can come back to what that actually did was for the first time in transen history gave a very solid secure Revenue stream which was sufficient to make the company both profitable and cash generative for a 10-year period and meant that we could actually invest in the surface s with business without looking over over our shoulders and that was a really important moment why structure that deal as a licensing deal which I think is a 10-year licensing deal to Bridgestone which is obvious great partner to have why not just sell it it's an interesting question and I'm very pleased it was structured it the way that we did as I said Bridgestone had been working as a channel reseller and initially the discussion with Bridgestone surrounded the possibility of spinning I track into joint venture and at that stage we would have structured that such that we would get a substantial profit share out of the JV company however Bridgestone were very keen also have total control of the equity for understandable reasons being you know a much larger company than we were so that eventually morphed into what almost was a quazi joint venture in that they bought the operating company which at that stage was still burning 100 Grand a month of net cash because it was in very early stages of winning market share they bought that company for neb asset value and paid for the IP and the use of the technology over a 10-year license period that gave them the benefit of not having to shout out a lot of money up front for technology that there weren't certain you know at that stage how much market share they could win but from our point of view meant that we got I think you know over time a much higher price than would have been achievable for what was a fairly embryonic business to put that into context so in the first three and a half years we've collected nearly 6 million pounds worth of royalty revenue and we still got six and a half years to run you know there's every reason to believe that we could earn double that over the next six and a half years so I think for both companies it was the right structure for a deal it was risk management for them and from our point of view secured a much higher price and also importantly that price that we extracted for the business is being taxed as Revenue and is capable of being offset against our tax losses brought forward so it was very tax efficient for us as well so in essence it's a very high margin Revenue stream that you can depend on for the next whatever it is six seven years now it's effectively an annuity stream for 10 years with no cost really it was the first of a series of transformative catalysts or events that Nigel and Lashley Ryan have overseen that really make trans ents an investment case again Jeremy you flagged at the start of the call how it had many of the Hallmarks of an uninvestable aim company cash burn serial raises Promises of jam tomorrow and what Nigel's very cleverly structured is you now have some startup upside potential in the form of trans logic and the saw talk senses but really an underpinning of the downside to explore that potentially material upside in the form of those royalties we estimate that as says the company's had sort of five six million of royalty money so far and there's probably another 10 to 15 depending on the uptake to go which is more or less the current market cap of transin so you're well underpinned on a contracted royalty and it's crucially given the team time and resource to explore the other two technologies Ryan mentioned how had' never come across a couple of them well they're now having the chance to get these in front of Target clients and the following catalysts have really been early evidence of that with the likes of GE Aviation McLaren Auto Sport and trans revenues emerging too which are both very very high gross margin businesses okay we'll come on and talk about those before we do Nigel's sort of given us the high level description of the two key Technologies in the group now what's the logic behind these two technologies is there any commercial logic or is this just a collection of Ip that we're trying to maximize the value of it's fairly safe to say that where the business has ended up today is because of events of the past if youve started again it wouldn't look like it does but the benefit of hindsight is a wonderful thing itra and trans logic inspection tools do not use S technology in those products I think in the early days they' intended to but they had lots of issues with that in general we can say it's easy looking back and being critical but you OB say it's as important to know what you can't do as it is to know what you can in the past the business did invest time and resources and they learned things that you couldn't do or weren't commercially viable with sore technology and we do have the benefit now of that experience essentially the two trading businesses that we have are quite different we have the trans logic Tire inspection tools we're selling to Tire manufacturing companies we're selling to commercial vehicle Fleet operators and Tire Distribution businesses and things it's a hardware product it's manufactured there's a lot of technology in it and it's a clever tool clever product but really it's quite different to the sore technology which is a very very deep tech technology it's something that has to get designed into vehicles and machines and systems so it's almost the biggest strength of sore is also its biggest weakness in that respect so they are very very different businesses that makes a lot of sense I mean we progress and evolve one mistake at a time don't we and as you say we're all shaped by our history I think that's really important and I think it sort of Segways into the reasons why I invited Ryan did I invite you or did I persuade you I'm not sure which why I invited Ryan to join the business but arm up back see I excited you into joining the business I think if you imagine the situation that I've just described in June 2020 I've just signed a licensing deal with Bridgestone and got a secure cash flow coming into the business for the first time in its history and then at that stage I've got two businesses that are left to be operated translogic which is at that time effectively looks like a small privately owned lifestyle business almost it's a cash cow at that time it was turning over half a million pounds it was profitable it was generating cash but very small for a listed business and then the big beast of surface acoustic wave which although the technology been around for some time was totally unexploited because transen had never had the time or the money but in truth either the right skill set in proper applications engineering to exploit what is a very exciting technology so at that time saw had been science Le rather than engineer Le and as the new executive chairman of the business my first task was to decide whether to invest in it heavily invest in it step by step or cut my losses it was still losing money so should we just cut our losses and walk away from surface acoustic wave and as we've identified as an accountant I'm probably not the best person to make that judgment and I set up a commercial advisory panel of people that I knew and trusted in various industry sectors where it seemed that surface acoustic wave might get some traction which led me to speak to half a dozen individuals very importantly Ryan being one of those as an expert in electric motors and drives came to join that advisory p initially you know for the price of a nice lunch to meet once a quarter and share experiences share ideas and also share a network of contacts and we spend 18 months exploring lots of different Industries initially opening as many doors as we can but then as Ryan's alluded to crucially closing three qus of them where there may be interesting applications but probably not ones where there's real money to be made and we're now very L focused with surface acoustic wave on those Industries where there are unmet needs which surface acoustic wave meets and where it can be cost effectively deployed in order to provide significant benefits for customers for which they're willing to pay the added benefit that I got as we'll explore is that because of Ryan's entrepreneurial background running his own business he also had a look at trans logic as business development director and said hey just a minute you know this is not just a lifestyle business there's a huge Market here and actually there's every opportunity to grow trans logic also and particularly bearing in mind the length of time for adoption of saw we actually see trans logic now as a Big Driver of short-term Revenue growth in order to bolster the royalty income that's coming in from itra and see saw on its way as the real strategic value driver of the company as I see it as what you're telling me is Ryan's in with your invitation or persuasion or whatever the price of that nice lunch was and we can talk about that later maybe he's got a lifestyle business that actually could become quite an exciting business but uh technology the is basically a solution looking for a problem to solve or several problems to solve but we don't know I mean we've got some early traction which I'm sure we'll come on and talk about in some exciting areas but that's what we've got today is that right I wouldn't say that no and Ryan can certainly come in in a moment what i' would say is that was certainly the position 18 months two years ago with Ryan as a consultant but actually that was the point at which I invited Ryan to join the businesses development director because he could see a clear route in the industry sectors that were now targeting to turn that into a very exciting business we're 18 months two years into building that Pipeline and he's well qualified to talk about that let's come on to SAR in a second but let's what is it Ryan that you think makes trans logic more than just a lifestyle business it's a tool to carry out rapid inspection and capture Tire data so pretty straightforward the thing that was interesting about it was you go back two years wasn't really on the main company website there wasn't any sort of particularly significant sales and marketing effort the team who'd been responsible for that product had gone to Bridgestone so it was sort of a bit of an orphan business but yet in spite of that we're dealing with four of the world's biggest tire manufacturing companies and actually shifting a reasonable quantity of units so started to look at it and talk to the customers and try and understand why they used it what value it brought I guess slightly unusually I have quite a bit of a background with commercial vehicle operators and understand that space a little bit so it could help to join the dots and started to realize you know actually when not even servicing a tiny little fraction of the potential market for this at the moment the need for good business data to manage Tire costs in logistics businesses so Truck and Van businesses is massive you know the tires are one of the biggest costs of those businesses maybe the third or fourth biggest operating cost and they're not managed very well it tends to be a distressed purchase you buy it at the very last minute or you know when it's blown out it's a massive safety thing if you have a tire issue it can cause an accident there's all sorts of really important things around the management of tires from safety to cost to your business efficiency found that what we have is a tool that's already being used by some of the world's biggest companies to deliver that for some very significant Logistics businesses as a service so the immediate thought was right let's try and understand that market how we can sell more to customers like that how we can find more customers that look like those and find some other channels to Market because you know as we all know the logistics Market is growing all the time the need to have safe vehicles and improved Road Safety is ever present so it's an absolutely vast market and the more time you spend looking at it and thinking about it you start to come up with different use cases different people that would benefit from using the product the main focus is mainly commercial vehicle and Logistics fleets things like rental cars you know you don't want to take a rental car away from the Depo that's got illegal tires and that has happened in the past and caused some of the big rental car companies some big issues so they have to do tire inspections well how do they do it they could use a tool like ours and that would make their inspections better faster more accurate and it would capture the data digitally and give them a data asset that they can then use to manage that cost in the business so it's a really great product and you like probably tell I'm quite excited about it as a product albeit on the face of it it's quite a simple product but it does deliver very very good value to the market so a lot of potential to sell more of that build new relationships build on the existing relationships in the space and really start to drive that business forwards does it have its own IP there is IP in the product there's no patents but we do have some protection in terms of the software that's in the tool the sort of design of the electronics and some of the smart stuff inside I think the key with a product like this is more keeping the product evolving to meet the needs of the market you know we're in a brilliant position where we've got these fantastic reference customers who are using these products in Anger day in day out we're getting all the feedback from them about you know what they like and what they don't like about it and how we can make it better in the future we've got a fantastic position to build on to just keep that distance between us and any competitors that might come into the market and build a bigger and better business around it should we come on and talk about surface acoustic wave why is it that its time has come now I think you've sort of explained well the market the people who might use this technology based on your assessment Ryan don't really know about it so perhaps we could start with how this technology offers a Superior Solution to Conventional measurements of talk actually it's not the best solution in a lot of applications okay and I do think that maybe in the early days of the business obviously again with the benefit of hide and sight which is very easy to say but we're looking at a lot of applications where maybe the technology didn't bring a significant enough value proposition to justify the investment in it and they kind of span the wheels a lot in the past we now have the benefit of all of that past work and hindsight and I'm sure frustration and Blood Sweat and Tears in the past but what we can understand now very clearly is where it does work and where it doesn't work and that's really allowed us to focus and concentrate on the applications where there is a good value proposition for the technology we did have some interesting customers so when I joined the business there really were two kind of key customers for the technology in GE and in McLaren applied so again a reference point talking to those customers about what worked for them and what didn't work for them about the technology and the business the thing in terms of why do I feel like now is the time for this technology you can say there's partly an answer in the technology for that but also partly an answer in how we've changed the business and the business model for that the feedback from the key customers that we had and actually talking to some customers that we didn't have that makes sense like some companies who looked at saw and hadn't taken it forward for one reason or another was that the licensing business model that transend did have made it very very difficult and risky for them to adopt the techn techology effectively the burden was put on the customer to do the application engineering to take the technology into a new application and actually what became apparent with three or four of these conversations was we had multiple customers effectively trying to solve the same problems over and over again that the company transcend already knew the answer to so kind of looking at that licensing business model and changing it moving forward is really important in terms of making the technology more accessible to the customer and drisking it because it is an unusual thing that most people have never come across before so how you design it into a new application what you need to do to make it reliable what you need to do to manufacture it volumes etc etc there's a lot of new things in there which trans sense knows and understands very very well and we're building on that but when someone's looking at it for the first time seemed very very daunting so changing the business model so that we are now providing more application engineering supporting customers to design into new applications and new programs and also being able to tell them much more clearly how it works and why it works is really helping us in terms of taking the product to Market and you could argue that all of that is marketing but it's more than that isn't it maybe this is a question for the accountant Nigel the licensing model it clearly works in semiconductors because we got businesses like arm and Nvidia that make nothing nothing but license everything but in industrial technology I think the history of transcent collaborating with all these big companies and okay you've got value from people like Emerson Electric and now Bridgestone but as a small listed company dealing with these big industrial businesses and you've want to protect your IP it's a pretty daunting position and not one that's proven to be particularly successful how should we think about this business Now versus old transcend if I get to the no of it if I compare the intellisource sale to emson under license in 2015 $5 million for a division of the business that at that time was burning about 100 Grand of months and the licensing to Bridgestone of the it technology for what is likely to be somewhere in the region of I'm going to be careful with my numbers here didn't give you a really wide range 12 to2 million dollar pounds are there for a business that was burning 100 Grand a months of cash because it was at early stage now what's different with saw well if we pursue the licensing model we could probably realize a number today for the sale of the business which would be substantially less than it's worth because it's too soon and I think that many technology companies who don't have adequate funding hit that problem because the UK and Europe are you know not easy places to get very comfortable levels of funding for early stage technology to give you a really long secure Runway without having to keep going back to the well and I think you know that's certainly an advantage in the North American market for example where funding for that type of business tends to be much more readily available so I think that's what places Us in quite a unique position now because we don't need to go back to the well we've dug our own well and we can open the tap as much as we like whenever we like to be able to invest in the S business so if we were to pursue a licensing model today and try and find an oem or a big tier one to take the S business from our ownership I'm sure we could but it would be at a much lower value than we think that we can achieve ourselves by investing in the business and taking it to a much later stage you don't want to be entering a transaction with a market you know 2020 the market cap of this business was less than 10 million you don't want to be talking to people about selling a division of a 10 million pound company if think that division is worth a multiple of that so until we've done the detailed work to engage the customers fill the pipeline prove the technology come up with the neat engineering solutions to turn it into something that looks like a product rather than something that looks like a technology for somebody else to play with then we will never be able to realize you know either through recognition in the share price in the market cap or the ability to sell the business at the right time for the right price we think that there is a huge value to be built by exploiting the relationships that we have and the pipeline that we're building right now and we don't have to look over our shoulders to raise money to be able to do that and that puts us in a very different position that is very important yeah I think that's one of the next key catalysts from the business as you look at it through an Investor's lens Jeremy and Nigel where that trans of the business model Ryan's talked about not only is it fine-tuning the route to Market but also offers the opportunity to earn engineering revenues as the technology is applied before the more long-term Revenue stream once something's designed in you know trans has been held back really by a lack of revenues and profits the team have quite shrewdly developed a model to bring forward some of those revenues to create a sustainable business model and create value for shareholders which is exactly what we look for in one of your recent updates you talked about the pipeline of potential customers for the sore technology can you just put that in perspective of what applications we're talking about where we're most excited about the potential applications for this technology and I guess the life cycle of this technology if it goes into a new helicopter or whatever it is there's a very big business opportunity for us in Aerospace there's a very big business opportunity for us in Automotive and particularly in electric drives used in in electric vehicle propulsion systems and there's a big opportunity in industrial Machinery so Robotics and things like that for for the technology the Aerospace Market you know is one of the more mature for us we had a referen customer getting out in amongst that market and talking to manufacturers of engines and aircraft and systems for aircraft has opened up a lot of opportunities for us very quickly we're now engaged with a number of new customers in that space where we're designing of s technology into new systems for aircraft so that's a really interesting Market commercially the Aerospace Market gives you a larger upfront engineering income and task to do flatter manufacturing production task because the volumes are not that high but then significant aftermarket what they call mro revenues potential because aircraft are very very long life cycle things you know we've got aircraft flying around today that are 25 30 more years old so maintaining those assets over their life cycle is a very involved process so the Aerospace industry I would say it doesn't have that kind of hockey stick of you get into production and and it all goes crazy because actually The Upfront engineering is very significant production volumes are are not that huge but then it continues for a long time through the repair and maintenance side of things so it's very sticky you know once you designed in to a new aircraft engine or a new aircraft you know that business is going to stay with you for a very very long time and deliver significant recurring revenue and it does feel like s technology was kind of waiting to be discovered in that space we quite quickly got to grips with what the challenges were in Aerospace and why they need torque sensing in different applications and where s brings value it's been very well received by the companies that we've been able to talk to we can't share their names but some very prestigious businesses in that sector so as an industry they already understand about using torque sensors so this is quite an important thing actually which we could talk about a little bit with the other two but in Aerospace today there's existing applications where talk sensors are used and we've kind of come along with a a better talk sensor that in those applications can give them some benefits normally around reducing the weight and the packaging volume and improving the accuracy of the measurement of it so it's kind of a better mouse trap in the automotive electric drive space that's actually much harder kind of proposition because today because other Technologies you can't put the torque sensor or temperature sensor easily into an electric motor it's not really in the consciousness of an engineer who's designing an electric drive system so you're not thinking about where can I get the best torque centor from to put in this because you just immediately write it off and remember in the very early days of transend was that conference and we were presenting a paper about the technology and literally the guy doing a presentation before me from a prestigious UK University stood up and he was like in an Ideal World you'd put a torque sensor in every electric motor but because that's not possible this is what we do instead and I had to stand up and I was like I'm really sorry if but it is possible it is possible you just haven't come across this is it the Soundwave element that's key Ryan rather than using Flex or electromagnetism to measure the torque that unlocks it for transit in electric motors so there the key thing with an electric motor it's a very what we call a noisy environment and we don't mean audible noise we mean electromagnetic noise so there's a lot going on inside a motor there's magnetic fields there's electromagnetic interference and a normal sensor is just simply overwhelmed by all of that environmental condition and can't operate inside that space in a way that's reliable enough to put into production because of how the saw technology works it's very immune to that kind of hostile environment which means it can operate comfortably inside an electric motor where you can't put a normal sensor for torque or for temperature really so it allows you to put a sensor where you couldn't before and our job in that market is actually introducing that as a concept to the market and talking about how you can do it and the benefits that that can bring and getting people to start thinking about it so there's a lot of potential in that space and we've been putting investment as a company into understanding the application of it and the benefits so that we can communicate that better to the market and we're starting to see some good Traction in that space so that's kind of like we're seeding a market that they're not necessarily looking for this solution we have found something that we think brings value and is unique in that space and now it's up to us to educate the market about the benefits that that can bring so that's a slightly different approach to getting the tech into the market but you'll see we've put out a lot of videos and a lot of content around that and we've got a lot more things coming around that to talk about in the next month or two now the content you've got on the website about how the saw technology can be applied in different Industries is very interesting I know another important aspect of that is that it has put transcend back into the world of applying for patents and protecting aspects of the S technology which you know otherwise would be starting to look a little bit long in the tooth because the core patents have been around for duration of the company and actually just in the last week or two we've been able to apply for a patent for the first time in 11 years that both butresses and extends the life of the IP portfolio and I'm sure be more of that to come should we come on and talk a bit about Capital allocation you're a micro cap company you're capitalized around whatever it is 16 million I think and you've been buying back your shares can you talk about how you think about Capital allocation how the board monitors the allocation of the it TR cash flows you've essentially got from the way I understand it you've been saying today you've got a good business in trans Logics but you've got a potentially transformational business in Saw and you've got a surviving shareholder base and you've obviously think you built up shareholdings in the company yourselves as potential investors in this business maybe as a question for Lori as well here but how do we go about allocating Capital most efficiently here perhaps Nigel you could start I'll set the ball rolling and just unpack some of that you know again I keep referring to the rebirth of the company in 2020 but you know let's recognize at that point that we also had quite a difficult shareholder base to manage because there was a long Legacy of small shareholders who had been around in the 2007 of a 60 million market cap in a pre-revenue company you know many of those have lost 95% of their money but hung around to Grumble about it although they've been very heavily diluted so that they're a relatively small shareholder base you can imagine they're also quite vocal and as a board we listen to everybody there were also then institutional shareholders who had come in more recently and particularly in the last round of fundraising which was done in 2015 when I joined the board and so they were largely coming in on the back of either e Eis or VCT funds and we're actually sitting on a decent profit by the time you take the tax effect into account so you know at that stage again you know June 2020 market cap well sub 10 million I could see that as we started to build value in the company there would be plenty of shareholders seeking an exit and the need to find new ones but finding new shareholders and 10 million market cap business with a difficult reputation was not going to be entirely smooth and it it won't surprise you and it won't surprise Lori or anybody who's listening that the a market might be described as being slightly less than perfect from time to time it's not very liquid even for companies five or 10 times the size of transcend I can't believe you say that Nigel that's unbelievable I have to ask you did you consider changing the name of the company at any point no because my own belief is that everybody just says that's the one that used to be called transen yeah good answer so um no I wanted to change the company not the name okay good answer that sort of puts a bit of context around Capital allocation so the company now has more profit and more cash coming into it than the S business needs to be invested in the business at the drip rate that we think is appropriate know we could have bet the farm didn't want to do that just wanted to bet the bottom field on taking a stepbystep approach to identifying Market opportunities and investing ahead to make sure we can exploit them so the company had a bigger cash pile and was generating more cash than the immediate investment needs of the business so it seemed appropriate at that stage to look at share BuyBacks and or dividends as a means of returning cash to shareholders and the board's assessment particularly you know over the last three or four years is that in an imperfect Market where there's plenty of sellers around when the price goes up but it's actually quite hard to find buyers then allocating a proportion of capital to taking those shares out of the market either temporarily or permanently makes sense if you actually look at the share price performance between 2020 and 2023 it basically sees from12 to 40p on the back of consistently hitting our numbers consistent putting out messages of improved business fundamentals and recruiting some really smart people and yet the share price was still up and down on sore teeth I personally took opportunities where I could to build my own stake and since 2020 it's more or less doubled I've I've got about 275,000 shares or thereabouts now all bought in the market but for at least half of the period between 2020 and 2023 I was also in possession of price sensitive information and so was the rest of the board so putting a standing instruction with Shard Capital into the market to enable the company after controlled rate to buy back its own shares was a very sensible use of capital in my opinion that's fascinating and I was listening to a podcast a couple of weeks ago Barry rolz was interviewing David Einhorn the US fund manager the title of the podcast was why smaller company markets have broken and wasn't talking about the aim Market he was talking about us small cap stocks where he was looking for undervalued assets but you can't rely on mean reversion because there's no liquidity therefore you have to only invest in those companies that are Distributing capital or dist making high distributions in the form of dividend or buying back their stock or both that's very relevant and I'm going to put a cross into the box for Lori to stick in the back of the net in a moment but you're absolutely right markets aren't perfect and as a board of directors or as an investor you can either moan about that and Grumble you're not getting value for the work that you've done as a board or as an investor or else you can try and exploit those timing differences and liquidity shortages that give you an opportunity and if you have the time and the patience to research the companies and crucially to buy well then there's a lot of value out there there there you go Lori balls in the air I'll happily play Teddy sheringham to your David Beckham interestingly the capital allocation debate it sort of highlights our investment thesis on transits or the investment case for transits you if the buyback carried on infinitum using the royalty cash flows you could actually you know effectively buy back the entire company over time and that's what really underpins that comment I made earlier on the call you've got the startup or high growth up side with risks in trans logic and saw but actually you're unpend on the downside because the excess cash flows of the business and the optionality that gives Nigel the board with its shareholders to really almost underwrite the future of the company and that upside you know a base case scenario is so doesn't take off transic generates some revenues but you get your money back in the form of BuyBacks and dividends and it didn't work out but you've got the chance for the upside s gets all the sort of airtime is the sort of more exciting sibling but you know trans logic it's worth keeping an eye on the trans ents hiring page on the website they've just appointed you know quite an exciting head of sales for that product and Nigel and Ryan have been really clear how they're very measured about spending this precious resource this precious cash flow I don't think they've made that recruitment on a whim and actually you really have two technologies here not just one and and the nearer opportunity is in the tread depth and time monitoring I mean first of January there was a material EU law change regulating a lot of this stuff we see it as a compliance and cost-saving product for you know Logistics is one of the biggest industries in the world I was slightly taken a back to learn at the last results meeting with the guys that actually trans logic its biggest sales Market is the US it's I think it's about half of revenues now for a business a little UK business that wasn't really trying that's a really encourag an interesting statistic I don't think they actually sell that much in the UK at all so we see lots to go for and an attractive gross margin that creates material profits in the context of the market cap and netting off the future roties from it TR the earlier discussion around why are these two companies together and does it make sense but actually what it does provide is a kind of drisking of how we move the business forwards I think from a capital allocation point of view you know a few people are said why you investing more heavily in growing the bits of the business and from my perspective when I first got involved with the business we just didn't know effectively s had been very quiet for a number of years while all the effort had gone into IR track and that perceived wisdom around the potential of translogic business at the time the remaining translogic business was quite different so it's taken us a while to build up the business case in a responsible manner it's dead easy to spray money at stuff but actually building a system sustainable business and doing it in a responsible manner that delivers value does take some time but it'll give us a much more efficient use of that capital I don't know if it's because I'm a northerner you I are both Northerners but I do see businesses flagrantly waste money and it just pains me you know we've got to be efficient with the capital that we've got we've got to be efficient with time as well there's no point taking forever to do something but you know there is a fine balance and I think line both very focused on that and trying to have the biggest impact that we can on the business how do you grow and sustain this business you remain a very small UK company dealing with some very large scale customers and potential customers can you just give us a sense of what the growth path is going to be like here what I see is an immediate opportunity with trans logic it's super exciting you know and there's a lot of activity happening there there's work to do you know we do have work to do in terms of the offer product we've got to ensure that we can scale up there's kind of new problems that are good problems to have but there are kind of new challenges that we're uncovering as we go forwards when when the business wasn't really growing dealing with a huge increase in demand wasn't something we ever had to really think about there's an awful lot of effort going into making sure that we've got a stable platform for growth in the trans logic business and there's a lot of opportunity around us in the very near term so I think that business in itself is an exciting business and we'll be able to put in some decent near-term growth there my personal belief is that the overall sort of potential of that business is significantly bigger than the kind of numbers a lot of people kick around but uh keep being told not to be a hostage to Fortune Etc but you can unpick it you know you start to look at the market and how many products you could have out there plus bundling other services and things in with them there's a very very good good sustainable business there with lots of growth potential on the sore side of things again there's work to do from a sort of engineering perspective there were definitely some things were missing when I first looked at the business that I was surprised that we didn't have that we've been working hard to put in place to make sure that again the product is more accessible to companies and that we can drisk the adoption so that activity has been very good over the last year or so and we've built a team that can really deliver and now that team is engaging on a equals basis with some of the biggest companies in the world and we are delivering projects and delivering value and we'll start to see that come through in the revenue Line it's taken a little bit of time to get everything lined up get ready obviously you can't make money from Engineers you don't have so that's sort of we needed to put the you got to invest ahead of the growth yeah and we've done that and we've got a good team and we will be adding to that team as well but the Aerospace in particular there's a strong pull through there there's near-term opportunities in Aerospace which I think will make a big difference to us in the other two sectors that are strong I mean it was in our last results announcement the interims we had at that point literally a week or so before the announcement went out just signed the first contract with a big robotics drive system manufacturer so we started an evaluation project with them we've filed the patent now we've got patents in progress and Automotive drive system in what you can do there so there's a big push coming in that side of the market we've got some really really good engagement there as well so there's a lot coming for S the revenue Builder will start to accelerate although it's it it's steadier if that makes sense you know translogic it's a matter of scaling up the production and the Fulfillment side of things and then we're selling boxes and getting them out in the market saw there's still this sort of Designing phase to go through yes we will earn money off that but that will build and build and build in a steadier way there's a lot coming an awful lot coming and and I think from a personal perspective when I first joined the business I really wasn't sure and Nigel mentioned earlier in the podcast about what the view might have been at the time in terms of what they were going to do with the business so against that kind of backdrop it's taken a while to understand what the potential is even if there was potential for this to be a a sort of let's say proper business rather than just a kind of hobby more lifestyle business and I now very excited by where we've got the business too and you can see the potential there's a real sustainable business or two real sustainable businesses growing out of this so it's a really exciting time to be part of the company I've referred a few times to The Rebirth of the company in June 2020 you know let's paint a picture of what it ought to look like when it becomes a teenager early part of the 2030s the Bridget royalty will have been collected banked some of it will have been reinvested in getting the other businesses flying some of it will have been returned to shareholders and at that stage the two self- sustaining businesses translogic and saw I'm absolutely convinced will be significantly larger than they are now there'll be Revenue generating they'll be continuing to deliver profit growth for the company as a whole beyond the life of the itra royalty I think you know at that stage we would be disappointed if trans logic had not doubled again and potentially doubled Again by the the early part of the next decade and in the meantime you know our Target for saw by that point would be in production in PS 12 to 20 customer programs across the three Target industries that are all capable of generating seven figure revenues and at significantly High margins so you know we could end up at that stage with a business with a you know a justifiable market cap of tens of millions rather than the 15 that it is today and we can see the route to do that we know what we needs to be done we've invested our own in buying shares in our belief that we can deliver now head down and go and do it and uh you know convince of the companies's changed as much as we believe that it has ourselves Nigel Ryan thank you so much for spending the time with us today absolutely fascinating discussion and I think you've done a very good job of explaining to me why this time it is different from where we started this conversation of 17 years ago and a market cap of 60 million and why today with Sim technology but with a much smaller valuation in the business and the new Dynamics and the technology makes a lot of sense so thank you it's firmly on my watch list and I wish you the best of luck and I look forward to having some opportunities in the future catching up and seeing how you're getting on with things so thank you and thank you very much also you know let's hope with the market cap of 60 million again and you can have a look at it and say I do believe it never in doubt [Music] brought to you by Progressive equity

2024-06-04 23:33

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