FULL REPORT HERE
REVIEW OF OPERATIONS
Structural Monitoring Systems Plc (“SMS” or “the Company”) (ASX: SMN) is pleased to provide a review of
operations for the half-year period.
Manufacturing – avionics/audio (“AEM”) AEM’s platform performance continues to impress, with top-line revenue for the first 6 months of the current
fiscal year at $A8.75 million v $A7.02 million (+25%) for the same period in the prior year. Normalised EBITDA for the first 6 months was ~$A1.57 million v $A0.88 million for the same period in the previous year. In line with the significant uplift in revenues AEM has continued to build inventory levels to $7.41 million (30 June 2019: $6.16 million). Budgeted revenue for the second half of the current year is $A10.56 million (vs $A9.90 million in the prior year), which would produce a full-year revenue result of circa-$A19.31 million – materially up from any prior year’s performance in AEM’s operating history. The improvement in financial performance has arisen due to a combination of the introduction of new products and new territories. Early indications are that the growth experienced in the first half of this financial year will continue in the second half, and given the performance to date, and outlook, the Board is confident of a demonstrably stronger full year revenue and EBITDA result.
CVMTM (“SMS”) FAA/IP Approval Progress: SMS and our industry partners continue to work diligently with the Federal Aviation Administration (“FAA”) to
receive formal Regulator approval for commercial CVM™ technology installations related to current B737-NG Wi-Fi inspection protocols. As previously communicated with shareholders in the December 10th Update, SMS is awaiting release of an Issue Paper (“IP”), an FAA-generated industry guidance document. The IP will officially communicate the FAA protocols and recommendations to achieve approvals for CVM™ technology.As communicated directly from the Company’s industry partners, who are collectively in direct communication
with the FAA, this initial IP document has now been created for internal FAA use and only three of the approximate nine required signatures remain to be executed by FAA management. Given this information, the final release of the IP is now imminent. Once released, there will be a brief industry review period, during which time SMS will provide feedback and/or comments (if any) to the FAA. This will likely be completed within a week of the IP release. Post this review and comment period, the FAA will issue its final version of the IP. Once received, Delta Engineering (“DE”) and Sandia Laboratories (“Sandia”) will formally establish a testing protocol regime in order to satisfy any validation and verification requirements communicated in the final IP.
SMS has been informed that this DE and Sandia testing phase will be completed within 45 days of its commencement. The resulting data package will then be sent to the FAA for review. SMS has already provided the CVM™ sensor kits and equipment required for this testing phase to both DE and Sandia in order to materially expedite the brevity of the timeline for this testing.
As of today, given feedback from both DE and Sandia, the Company now anticipates that the full and final approval of an FAA-issued Supplemental Type Certificate (“STC”) for the B737-800 Wi-Fi application should be received and in-hand in late-Q2/early-Q3. This timeline takes into account likely foreseeable FAA response times which adhere to the previous norms established for similar industry approvals.
Commercial Activities and Business Development:
Immediately upon STC approval, SMS will rapidly engage commercially with several airline operators to both schedule and actively install CVM™ equipment on operating fleet aircraft. Delta Air Lines (“Delta”) has requested, and SMS has already provided, preliminary kit pricing for the B737-NG Wi-Fi application for Delta’s engineering and budgetary review and approval. Once approved by Delta, SMS expects installs on the Delta B737-800 fleet.
As stated above, the FAA IP is the critical regulatory step permitting SMS to move forward with clear certainty in the effort to commercialise the Company’s CVM™ technology in the global airline industry. SMS executives continue to maintain a close and continuous outreach and contact protocol with multiple major airlines in theUnited States and Europe. These activities naturally include regular updates to the airlines on the status of the FAA IP. The Company continues to receive a high level of interest and support from all engagement airlines, and the constant communication in this regard is that they are willing to move the current engagement meaningfully further once the first STC approval is granted.
In summary, the level of enthusiasm from the airline industry is high, and SMS management remain confident that major airlines will execute CVM™ orders soon after the first FAA approval is granted. Further, at the time of this approval, SMS will immediately begin the process of obtaining multiple in-series, and parallel, approvals for additional STC’s on B737-NG and other aircraft types. This will also involve direct and ongoing engagement with both the FAA, and the European Aviation Safety Agency (“EASA”) in the months ahead.
Revised SLA with The Boeing Company
SMS and Boeing executed a revised and updated SLA agreement in Q2-2019, as previously communicated. This document was executed in parallel with the progression of the aft-pressure bulkhead (“APB”) inspection approval process within Boeing. This milestone leaves SMS with one final document, a Technical Consulting Agreement (“TCA”), to be executed with Boeing in relation to the current 737-NG APB project. The TCA will identify in detail the engineering data support and analysis required from the OEM and the pricing associated with providing such support. SMS anticipates the finalisation of this document in the very near term. The TCA will pave the way for how the Company will address all future CVM approvals which may also require Boeing engineering input and technical analysis. The associated costs for all Boeing work required to approve SMS CVM Kits for all future Service Bulletin, Airworthiness Directive and maintenance tasks on behalf of our global operators will be covered under individual TCA’s. Significant work has been completed on the TCA, by both Boeing and SMS personnel, and the Company expects to have an executed TCA in the near future. As such, at this juncture the Company has maintained the timing for approval of the Service Bulletin by Boeing will be obtained in 2020.
The Company’s most recent telecom with Sikorsky, hosted by Sandia Lab’s Dr Dennis Roach, indicated a continuing strong interest in proceeding with CVM™ deployment. SMS and Sandia Labs have now completed an extensive series of general CVM™ performance tests for rotorcraft while working in concert with Sikorsky engineering. Multiple meetings have been held with Sikorsky Chief engineers and senior management to discuss the successful results and to take the next steps toward formal adoption of CVM™ solutions. Sandia Labs and the FAA have provided Sikorsky with a template for a formal validation/certification plan. Sikorsky is currently using these guidelines to produce their validation plan to support specific applications and associated discussions with their FAA Aircraft Certification Office (“ACO”). Three distinct CVM™ commercial applications, that provide both tangible technical and economic benefits, have been identified on the Sikorsky S-92 aircraft. Near-term plans expected to be underway in the first half of 2020 include both certification testing and flight testing by a key operator of Sikorsky rotorcraft. Completion of this phase will then pave the way for formal regulatory approval, and subsequent adoption/installation, of CVM™ equipment on Sikorsky rotorcraft immediately thereafter.
Other Key Customer Activities:
In addition to the Company’s primary B737 APB and multi-fleet Wi-Fi programs, throughout the year SMS has remained fully engaged with several major US and European carriers regarding the commercial deployment of SMS’s CVM™ sensor technology. The level of interest in the industry remains very strong, and consistent feedback received regarding use of our sensor technology is highly indicative that once SMS receives any leading confirmation from the FAA that CVM™ is to be approved, these airlines will be immediately ready to discuss progression to key commercial applications.
Group Board appointments
On 1 November 2019, the Group welcomed Stephen Forman to the Board of Directors, where he was appointed an independent Non-Executive Director, as well as serving as the Group’s new Head of Investor Relations. Additionally, existing Board member, Will Rouse, agreed to assume the role of Executive Chairman of the Board for the Group. Will’s operational role will continue as the main overseer of AEM’s legacy business platforms. Mike Reveley and Terry Walsh continue their Directors’ roles. Operationally, Terry will continue to oversee the Group’s Legal and Corporate Affairs, while Mike’s operational role will also include bridging the all-important gap between SMS’s primary business development activities (overseen by Rich Poutier) and the Group’s key
investor relations function, now overseen by Steve Forman. In this regard, Mike will work with, and directly support, both functions in every facet, ensuring also that informational flow is seamless and efficient with respect to these critical elements of the Group’s overall platform.