Srt Marine Sys. Regulatory News (SRT)

2 Nov 2005 08:00

SOFTWARE RADIO TECHNOLOGY PLC ADMISSION TO AIM Software Radio Technology plc ('SRT' or the 'Company') was today admitted to trading on AIM in conjunction with a placing which raised £4.04 million (before expenses). The market capitalisation of the Company at the placing price of 35p per share is £24.17 million. The ticker for the ordinary shares is 'SRT'. Westhouse Securities LLP is acting as nominated adviser and broker to SRT. SRT's Business SRT uses its existing portfolio of IPR to develop wireless technology reference designs which are licensed in the same form to multiple customers in return for a combination of licence and product development support fees and ongoing royalties. SRT does not manufacture anything. The Group targets niche sectors of the national security market, where governments drive the necessary investment and where the specification of products is defined by internationally agreed and maintained standards. A SRT reference design enables manufacturers to develop proprietary versions of complex digital wireless products more rapidly and cost effectively than through in-house development and without the associated development cost and risk. SRT has focused on digital communications and marine tracking technologies. The Group currently licenses reference designs for a TETRA professional mobile radio handset, a technology which is being adopted by security and emergency services around the world, and automatic identification systems (AIS) for use on commercial and leisure vessels. SRT has already developed an AIS Class A transponder for use on commercial vessels and is nearing completion on its AIS Class B transponder for leisure vessels. SRT receives licence and product development support fees. SRT further receives a significant per unit royalty on every product manufactured. For the TETRA handset design, the licence and product development support fees have averaged US$1.35 million per contract, with an average net royalty of approximately US$20 per product manufactured. For AIS, the licence and product development support fees are up to $300,000, with royalties of$30 to $120 per unit. Royalties are secured through the inclusion of a single source component within the hardware design over which SRT either has proprietary control or an agreement in place with the component manufacturer to monitor, track and, wherever possible, control the supply thereof. Royalties are currently being received in respect of the AIS Class A design from two customers and the Directors expect royalty income from its TETRA reference design to commence during the first quarter of 2006. Markets TETRA is used in more countries than any other professional mobile radio standard: over 70 countries in total. The Directors estimate that global demand for TETRA handsets will increase from approximately 500,000 units in 2004 to approximately four million units per annum by 2010, with Europe and Asia together accounting for over 90 per cent of the market. The SOLAS Agreement mandated the installation of AIS Class A transponders on 150,000 vessels worldwide. Following on from AIS Class A, the creation of a simpler AIS Class B device has created interest from government agencies, such as the US Coast Guard, in seeking to mandate AIS as standard equipment on all marine vessels. The Directors estimate that if AIS Class B was mandated in the US for leisure craft, it would create a market of approximately two million units per annum. Customers SRT has, to date, signed seven licence contracts with leading electronics and technology companies in the EU and Asia, in particular, China, of which four are for the TETRA handset design and three are for AIS. A number of further licence contracts are under negotiation. The Directors believe that there is a preference for government agencies to purchase national security related products from local suppliers. Indeed in China, government agencies are required wherever commercially viable, to buy products from local manufacturers. As a result, the Directors believe that the Group's Asian TETRA handset customers are well placed to win a substantial share of their local markets and a share of the international market. Growth Strategy The next stage in SRT's strategy in respect of its TETRA reference design is the development of the next generation of the designs, the primary focus of which will be on reducing manufacturing costs and should enable SRT to increase its royalties. The immediate focus of its AIS development plans is the completion of the AIS Class B reference design, for which the first contract has already been signed. SRT is also investigating the avionics market where the Directors believe that a previous technology design trialled by the Company may give SRT a competitive advantage. The Company is also accelerating its exploitation of its IPR portfolio, with the objective of identifying further applications for the use of its patented linearisation technology. Key Statistics Placing Price 35p Number of Ordinary Shares in issue following the Placing 69,044,530 Market capitalisation at the Placing Price on Admission £24.17 million Number of Ordinary Shares being placed on behalf of the 11,552,850 Company Number of Warrants in issue following the Placing * 11,552,850 Percentage of Enlarged Share Capital being placed pursuant to 16.73 per cent. the Placing Estimated net proceeds of the Placing £3.51 million * The Warrants, which have been admitted to trading on AIM, entitle holders to subscribe in cash for Ordinary Shares at an exercise price of 40p each at any time from Admission up to and including the second anniversary of admission or earlier in certain circumstances. Shamus Kelly, Managing Director of SRT, commented: 'This is a very exciting time for SRT. Our shareholders have invested significant amounts in developing our reference designs enabling us to license them to a range of major electronics companies. 'We felt the time was right to float and raise further funding to advance the development of the business, both by signing further licence contracts and by helping our customers to develop their versions of our designs more quickly, thereby generating royalties for SRT.' Simon Tucker, Commercial Director of SRT, commented: 'Our reference design approach has proved extremely attractive to the market. It enables manufacturers to de-risk and speed up the development of complex wireless products which are in demand in the market. 'We have already signed seven licence contracts which are generating significant revenues even during the customers' product development phase. Our first two TETRA customers are now nearing the production stage when we expect the real benefits of our royalty model to start coming through.' For further information please contact: Software Radio Technology plc Tel: 01761 409 500 Simon Tucker simon.tucker@softwarerad.com Westhouse Securities LLP Tel: 0161 838 9140 Tim Feather tim.feather@westhousesecurities.com The Communication Group plc Tel: 020 7630 1411 Richard Evans/Elizabeth Skerritt revans@thecommunicationgroup.co.uk Notes to Editors TETRA TETRA (Terrestrial Trunked Radio) is an international mobile radio digital communications standard designed specifically for professional mobile radio (PMR) users. PMR users are characterised as users who rely on mission critical communications to carry out their work, for example the police, military, fire departments and transport companies. Digital systems offer advantages over analogue systems, such as greater functionality, high level encryption and call reliability. Being an open standard, TETRA also enables true interoperability between different manufacturers' equipment, thereby facilitating the use of handsets from multiple manufacturers on the same network. In the same way as the mobile phone market, PMR users, driven by their requirements for greater functionality and performance, are currently migrating from analogue to digital systems, creating a rapidly growing market for digital radio systems. Worldwide, there are an estimated 32 million PMR users, approximately 85 per cent. of which are still operating on analogue systems. The overall PMR market is growing annually at approximately 5 per cent. per annum, primarily driven by national security concerns and the resulting government investment. However, the digital element of the PMR market is growing more rapidly, due to the migration from analogue to digital systems by PMR users. Within the digital PMR market, there are a number of standards. TETRA is used in more countries than any other standard: over 70 countries in total. The US, where approximately 50 per cent. of the current global PMR market is located and where Motorola's APCO 25 standard is prevalent, is the most notable exception to the widespread adoption of TETRA. Outside of the US, this standard is not commonly used. AIS AIS, or Automatic Identification System, is an international standard that was initially developed to create an intelligent system using VHF and GPS technologies to prevent large vessels colliding with each other. AIS transponders continuously transmit the vessel's position, course and speed, together with other identification details, whilst being able to receive similar information from other AIS transponders within range. Each transponder uses this information to calculate the relative position of other vessels and automatically provide warnings of impending or potential collisions. When operating in coastal waters, AIS is designed to feed information to authorities through base stations located onshore or any other strategic point. The information provided by each transponder is comprehensive and allows the vessel to be instantly identified, monitored and tracked. The system also provides a text messaging facility between vessels for private, line of sight communications. AIS was initially implemented in full in the form of AIS Class A transponders in accordance with the IMO SOLAS Agreement. A simpler variant of the AIS Class A standard is now nearing completion and will be known as AIS Class B. AIS Class B uses the same basic principles, but removes functionality which is deemed not necessary for smaller commercial and leisure vessels to which Class B has been targeted.