Harry Norman from Proactive Investors talks to David Wither, CEO of Sarantel, listed on the AIM market technology hardware and equipment sector. Stock ticker SLG; share price 0.64 of a penny; market capitalisation 5.3 million pounds sterling; www.sarantel.com.

Harry Norman: Please give investors a brief introduction to Sarantel the market the company is addressing and your strategy for growing the business.

David Wither: Yes well Sarantel is a high tech manufacturer of a unique and heavily painted antenna technology. This technology addresses a number of markets; but today we are primarily focused on the military market and some industrial markets which use GPS. Our customers tend to be very performance focused but they also would like to have things which are smaller in size.

We have recently announced a number of significant wins in the military market; so our strategy is to continue to reinforce our success in these markets. We are now supplying all the leading military radio manufacturers around the world really with our technology. We want to really reinforce success to expand our market share in that; then also roll out our GPS antennas in two other new markets as well.

Harry Norman: On February 8th Sarantel won its largest order ever from a leading military radio manufacturer for Geo Helix GPS antennas. What did this customer find compelling about Geo Helix GPS antennas? What can you tell investors about this company, this order and the impact it will have on Sarantel?

David Wither:  Well this particular company is really the leader globally in tactical radio systems so they provide both hand portable radio systems, for militaries really around the world; they have a significant international presence as well although they are US based. But they selected our technology because what they really need is small high performance antenna which works in very difficult environments and works close to soldiers. These are effectively safety critical applications, where you need to know exactly where your soldiers are on the battlefield at any given time. 

So they really selected our technology because we are really the best in the market at this. We believe that this particular order, and it is a multi-year contract that we won with them – will have a very significant and positive impact on Sarantel’s revenues; not only this year but hopefully for many years to come in the future. 

Harry Norman: What other applications have Geo Helix GPS antennas been trialled for are in the sales pipeline, or have been ordered?

David Wither:  If you look at where Sarantel’s technology is used in general across our customer base, you find a number of common threads that go through those applications. One is we typically have customers that are very focused on performance. Now they typically use our antennas in small devices. Many times these devices aren’t portable or they are installed in areas where you can’t always guarantee the orientation of the antenna. That is a very important thing about our technology and a big differentiator. 

So we really have seen quite a large number of applications for our technology from anywhere from asset tracking to prisoner tracking to – as I said earlier police radios or military radios; so it is quite a broad range of different applications. 

Harry Norman: On November 15th NAL Research ordered antennas for its next generation tracking device, the Shout Nano, a hand held global two way satellite communication device, and emergency beacon. Who are NAL Research and what can you tell us about the antenna technology involved; the order and its value?

David Wither:  So NAL Research is one of Iridium’s leading value added manufacturing partners. So Iridium is a US based satellite network operator and NAL as I said is one of their leading value added manufacturing partners. NAL has quite a large customer base. They provide the small two way portable devices in to the State Department in the US, the special operating forces. 

So they have actually provided the same devices about the size of a pack of cards with Iridium and ** [0:04:15] to a wide range of different customers. The technology specifically we are providing on this today is the Iridium antenna. So we make a very compact high performance Iridium antenna and it works extremely well on this device. I think we said when we announced the deal on 15th November that the order would be worth approximately a million dollars over the next two to three years. So we are excited about this essentially new and expanding part of our customer base. It is really something outside of our traditional core GPS market. But it is a good new opportunity for us to grow sales of our technology.

Harry Norman: What other technologies or applications is Sarantel working on developing, or making sales in David?

David Wither:  In a previous example with NAL we talked about this mobile satellite service. NAL – Iridium actually provides what they call a mobile satellite service. So they are a global satellite service provider. We have worked on developing some antennas recently for Global Star, which is one of Iridium’s competitors. So we are excited about seeing our technology expand into those markets. We are also looking for a number of military applications; though again size is critical and performance is critical. So we are now working on developing multi band antennas; we are doing multi frequencies on one single antenna.

So this applies both in the GPS area but also in the future we think in the consumer space there is an interesting opportunity for making multi frequency antennas. We are also developing a GPS and Wi-Fi or Bluetooth antenna combined; we think that will be very attractive to customers in a number of developing markets; potentially even including some high volume consumer markets.

We have been spending a lot of time in Japan recently and we have done some trials in Japan with the major supplier; so we are hoping to supply our technology into specifically cameras initially. But then hopefully beyond that in the future. 

Harry Norman: In the first quarter of 2011 Sarantel shipping its technology to 319 customers, including 169 new customers and was tracking 129 active opportunities. What can you tell us about this quarter’s sales pipeline? 

David Wither:  I think the interesting thing about what is happening right now with sales is we are starting to see a number of new customers start to creep up our hot customer list. And a few of these applications are things that have been in development for many, many years. You know one of our larger customers is a company in the US that makes a seismic probe. It is a company called AutoSeis. They use our antenna technology in this probe to help synchronise and time some very sensitive circuitry which is used for ultrasonically probing the ground, to determine where you will drill a hole to explore for oil or gas. 

An area that you would never really think about using our technology; but what we are starting to see is the emergence of applications like that. We are starting to see companies that are buying our technology, to supply them to applications where you will put a tracking device on a container, which is used for a major airline in the US. For instance, they are putting tracking devices on all the containers they store your luggage in. So once it comes out of the plane they can find this container on a large airport; maybe in Beijing. So again asset tracking is starting to become a very, very big part of our business. We think that will grow significantly in the future.

Harry Norman: On March 1st Sarantel agreed a 2 million pound secured loan facility with HSBC. Please would you talk us through the terms of this loan; Sarantel’s capital structure and financial situation going forward?

David Wither:  So this loan was a secured loan that we were able to negotiate with HSBC on the back of the largest order that we would receive; we talked about that earlier. A very attractive loan for Sarantel it is 3% above libor; so we are paying about 3 ½ % interest on the loan. It is in the interest only loan with a balloon payment at the end of a two year period. So we felt that given the heavily dilutive funding rounds that we have gone through in the past, we were not interested in raising equity at the existing share price; we felt this was in the best interest of our shareholders to take this loan under what are quite favourable terms. It does not provide a significant burden on the company because we only have to service the interest payments before we pay off the balloon loan at the end.

So we think all in all there is a very attractive deal for us. Today we have no other debt in the business and really it has just been a really straight equity financing up to this point so we only have two classes of the shares; but basically the same rights for both classes of shares. And the shares are all listed on the AIM market. So it is a very clean structure; other than this particular loan we have just secured. 

Harry Norman: What can investors expect from Sarantel over the next 12 to 18 months David?

David Wither:  Well the important thing about the loan is that we believe that gives us the finance to get the business to profitability. We have announced a whole series of very significant deals last year. These deals are things that we have been working on for many, many years. Now these are just starting to go into production. So this year we expect to see very significant growth in our sales. The plan is to really maintain that momentum going into next fiscal year. So I would expect for the next 12 to 18 months for our investors to see significant revenue growth in the business and sustained profitability. Again we are very happy that we were able to secure finance which did not require us to issue equity at very low prices; which in the past has been quite heavily dilutive for investors. So hopefully our investors will start to see return on their investment after many years of patience with the business and sticking with it.

Specialist GPS antenna maker Sarantel Group (LON:SLG) today said that recent orders will have a material impact on second half revenues and beyond.

In a trading update, for the six months to March 31, it revealed first half revenues of £0.9 million (H1 2011: £1 million). And it said it had a cash balance of £0.2 million at the end of the period, though an additional £165,000 tax credit was received this month.

Sarantel says production revenues increase 9 per cent helped by ‘significant’ growth in the military market. But development revenues had decreased at the same time.

Its performance in the military market continues to build momentum, as demonstrated by a ‘substantial’ order from a military radio manufacturer in February this year. This is part of a multi-year deal which, along with other recent orders, is expected to have a material impact on revenues going forward.

Sarantel also added that with the support of a major customer it has secured a £2 million loan from HSBC Bank, which will help revenue growth.

"The military contracts we have secured underscore Sarantel's position as a supplier of leading antenna technology,” said chief executive David Wither.

“With our recently agreed loan in place, and a firm order book of just over £2m compared to £400k this time last year, we look forward to strong growth in revenues for the second half of the financial year."

On AIM Sarantel shares gained around 3.5 per cent following this morning’s update to trade at 0.59p a share.

XCap analyst Tim Freeborn was also buoyed by the statement. And he says Sarantel is on track for much better days.

“The growing order book is the key here,” Freeborn said in a note to clients. 

“This has let Sarantel obtain debt finance from HSBC which means it should reach profitability without having to tap shareholders again.

“Yes, we are the house broker, but we took on the company because we believe the £40m+ it has swallowed is about to start showing a return. Progress in the consumer mass market will send the numbers through the roof.”

Antenna technology specialist Sarantel (LON:SLG) will move close to profitability in 2013 as orders build from the military, according to broker Xcap.

The broker has also upgraded its forecast for 2012 from an underlying loss of £1.2 million to a £1 million deficit after the latest full year figures.

Xcap said the numbers were bang in line with its forecast, with the broker also raising its sales forecast by £0.3m to £3.5 million.

Its estimate for the year to September 2013 is for sales to rise to £5.3 million with Sarantel breaking even at the EPS level.

“These figures take no account of potential game-changing orders for consumer electronics appliances,” added Xcap.

“The earliest volume consumer application is likely to be a combined GPS/wifi unit for 35mm cameras. An initial order for, say 1m units, would add £0.9m to sales and £0.3m to profits.” 

Sarantel’s antennas are also accurate to within a metre, making it highly attractive on the battlefield.

Xcap says that in the past military orders have been lumpy and prone to unexpected slippage, but as the company wins more design-ins its revenues are becoming easier to predict.

On 7 February it announced a largest-yet order from a military radio supplier. 

The recent £2m loan facility at only 3% over libor also meaning Sarantel can fund itself to profitability, removing the threat of a further placing.

The broker added that Sarantel has reduced the size and cost of its antennas but a  volume price of $1.40 per unit still gives a 30% gross margin.

“Even without the consumer breakthrough, the company is on a clear path to healthy profits. We suspect our numbers will turn out to be very cautious. Meantime we remain comfortable with the 1.7p price target,” Xcap said.

Miniature antenna maker Sarantel (LON:SLG) said today sales had picked up in the second half following order delays earlier in the year.

Revenues for the year to September overall dropped from £2.9 million to £2.2 million but Sarantel said the sales fall all occurred in the first half and was due to "very specific customer related issues".

Revenues in the second half rose to £1.2 million from £1 million.

Losses for the year were flat at £3 million, with lower operating profits offset by reduced admin costs.

Sarantel added that despite the problems, its antenna technology continued to build momentum in the military market with a number of major new contracts.

Customer funded product development revenues, an indication of future revenues, increased by 141 per cent.

In February, the group received its largest ever order from a military radio manufacturer, which it said will have a substantial impact on the group's revenues and cashflow for 2012 and beyond.

David Wither, Sarantel’s chief executive, said that the group’s technology has gained significant traction in the military market place and is confident it can maintain the momentum.

“There are also a large number of encouraging new opportunities in the broader GPS market and, having secured the £2m secured loan facility to provide additional working capital with support from a major customer and the group's bank, the outlook for Sarantel's technology remains very positive,” he added.

The order is from an unnamed US military radio manufacturer, which will use Sarantel’s GeoHelix GPS antennas across a range of its products.

One use of Sarantel’s GPS antennas is in compact radio systems that are embedded inside a soldier’s body armour.

Sarantel added that the order was part a multi-year supply contract expected to be delivered over the next 12 months.

It is currently considering a number of options for both short and medium term financing, including a commercial loan.

David Wither, chief executive. said: "This is the largest order that we have secured so far and we expect it to have a material impact on our revenues. It is a great endorsement of the importance of our technology to world leading customers."

Broker XCAP said the order was great news for the company and the broker expects eventually to raise its September 2012 sales and operating profit forecasts “materially”.

“Today's order takes Sarantel a long way towards profitability even without any contribution from camera GPS contracts,” it said, while the comments about financing suggest the company believes it can fund itself with bank debt based on the current order book. 

XCAP said if Sarantel does make a breakthrough into consumer products, it may need to riase money to cover the ramp-up, but in that situation the share price “would be far above current levels”.

Today’s order follows on from an award last November from US-based NAL Research Corporation for its second-generation Iridium antenna for a low-power, two-way satellite messaging and personal tracking device. That deal could generate revenues of US$1 million.

NAL will use the antenna as a component in its new SHOUT nano TS – a low-power, two-way satellite messaging and personal tracking device. The order is expected to generate in excess of US$1 million in revenue for Sarantel over the next three years.

The nano TS is the third generation of SHOUT products that have been designed to use Sarantel’s Iridium antenna. It adds a vibrant touch screen and incorporates a full QWERTY keyboard, which adapts to portrait or landscape orientation.

The compact, rugged device uses the Iridium satellite communications network’s short burst data service to provide location information, text messaging and emergency e-mail alert notifications.

“NAL Research continues to lead the market in the development of satellite messaging terminals,” said David Wither, Sarantel’s chief executive officer. “The innovative nano TS introduces an interactive touch screen while offering a full set of features, in a high performance, compact rugged design. We are delighted that our relationship with the NAL Research team has continued through multiple generations of their world class hardware.”

Specialist antenna firm Sarantel (LON:SLG) has confirmed today that the volume production orders for its GeoHelix GPS filtering antenna announced in mid-May were for the AutoSeis HDR1C – an autonomous, high-definition recording unit (otherwise known as a ‘node’).

The AutoSeis HDR1C is supplied by AutoSeis Incorporated, a global geophysical services company. According to Sarantel, the HDRC1C seismic node “promises to revolutionise the natural resource exploration process”.

The node uses Sarantel’s GeoHelix GPS antenna as part of a precision timing and location system that enables the probe to gather highly-accurate geological survey data.

The GeoHelix GPS antenna was selected for the application because it offers an omni-directional gain pattern that provides the customer with stable and reliable GPS performance across a wide range of installation environments. 

The wireless capability of the HDRC1C means that many of these nodes can easily be deployed over a large geographical area, replacing expensive and time-consuming wired survey systems. This means, as Sarantel said back in May, that the deal should “have a material impact on revenues” over the next year.

“Selection of our technology by AutoSeis underscores the progress we are making in delivering leading edge solutions,” said David Wither, Sarantel’s chief executive officer. “GPS is used as a precision timing source for a broad range of applications and the HDR1C autonomous seismic node is a great example of how our technology is enabling the development of a raft of game changing devices.”

Shares in Sarantel were higher by 3.7 per cent at 0.7 pence each soon after the market opened this morning.

In a mixed trading update, the firm said that unit sales had increased by 21 per cent during the six months to the end September but that total revenues for the entire year are expected to be down 24 per cent on the previous financial year at £2.2 million. This, said the firm, is largely due to delayed orders announced at the half-year stage from two of the group’s largest customers.

However, revenues from the development of new products increased by 143 per cent during the year as the firm’s investment in research and development “continues to bear fruit”.

Sarantel said that it made significant progress in developing its sales and distribution network, which has helped it add more than 250 new customers during the year.

Meanwhile, the firm said it continues to make strong progress in military and other high-value markets, receiving customer funding to develop a number of rugged GPS and satellite communications antennas that are now being sold as part of a growing portfolio of high-value products.

The firm added that it shipped products to more than 450 customers during the year and it also announced today that it has successfully completed field trials with a major Japanese camera manufacturer. GPS antennas installed in cameras allow the recording of the geographical location of a photograph, and Sarantel said that the small size and high performance of its GeoHelix GPS technology make it particularly well suited to this application.

Sarantel added that at the end of September it had a net cash balance of £1.2 million.

Itronix – a subsidiary of US defence giant General Dynamics that specialises in rugged mobile computing – will use GeoHelix in its GD300 rugged wearable computer. According to Sarantel, this wrist or chest worn computer combines the best-in-class commercially available GPS technology with battlefield-rugged computing for “an ultra-thin, lightweight and cost effective computing and situational awareness platform”. 

The device operates like an ultra-sensitive commercial GPS (Global Positional System) unit, or interfaces with tactical radios, for secure network access. 

“Sarantel’s antenna technology is uniquely suited for precision, body-worn applications that have to operate in the most challenging environments,” said David Wither, Sarantel’s chief executive officer. “We are very pleased that General Dynamics Itronix has selected our technology for the GD300 Rugged Wearable Computer. This highlights our growing traction in military applications where precision, reliability and small size are critically important." 

Sarantel is a specialist in the design of high-performance miniature antennas for portable wireless applications. These ceramic filtering antennas are designed to deliver improved performance over existing antenna designs, resulting in a clear signal, better range and 90-per cent reduction in the amount of signal radiation that is absorbed by the human body.

This latest news of orders comes after the firm received production orders from a leading European electronics company at the start of September for its SL1206 GPS antenna. The SL1206 GPS antenna will form part of a compact radio system that is embedded inside body armour that has been designed for soldiers.

Its revolutionary ceramic filtering antennas offer dramatically improved performance over existing antenna designs, resulting in a clearer signal, better range and a 90 percent reduction in the amount of signal radiation absorbed by the body.

Because of their smaller size and higher capabilities, Sarantel's antennas enable manufacturers to create innovative wireless products for the GPS, WiMax, satellite radio and satellite phone markets.

Analyst Ian Robertson, of City broker Seymour Pierce, said this was further evidence that Sarantel is making clear headway in the defence market following on from recent deals.

Sarantel Group PLC (AIM: SLG, ‘Sarantel’ or ‘the Group’), a leading manufacturer of high-performance, miniature filtering antennas for mobile and wireless devices, has received production orders for its rugged GeoHelix GPS antenna for use in the US military’s Rifleman radio, part of the US Joint Tactical Radio System (JTRS) Handheld Manpack Small Form Fit (HMS) program. 

The Rifleman radio recently demonstrated its value and utility in an exercise conducted by the US Army’s 82nd Airborne Division, where the radio was hailed as effectively filling critical communications gaps that are unmet by current tactical communications systems.

A news release issued by General Dynamics C4 Systems on 7 July 2011 stated, “[US] Department of Defense documents indicate that the Army plans to purchase more than 190,000 Rifleman and approximately 50,000 Manpack radios”. 

At those order levels, this contract would generate revenues in excess of $6 million for the Sarantel Group. The Sarantel Board believes that these orders would be placed over the next five years. 

This is the largest design win to date for Sarantel and demonstrates the growing importance of its technology to the defence industry. 

David Wither, CEO of Sarantel, said:

“This is the most significant military contract we have secured to date. This order and the inclusion of our GeoHelix antenna in the Rifleman radio is great testimony of the value of our technology in demanding military applications. 

"We are successfully executing our strategy of driving sales growth in high value, ruggedized antenna products, and building on the growing momentum in our key military market. The purchase order will have a long term, material impact on our revenues”. 

Sarantel revealed this morning it has received “volume production orders” for its GeoHelix antenna. The technology will be used in a new seismic probe that could revolutionise the natural resource exploration process, the company said.