Seeing Machines charts a path towards profitability

The next year should be one of massive transformation for the technology firm Seeing Machines (LON:SEE).

Analysts expect its sales to more than double in that period, which means the group will be cash generative and profitable.

It will be the culmination of years of hard work, first for the researchers who perfected the science on which SM’s products are based, and management and staff, who have diligently prepared the groundwork for commercial success.

The firm’s products are based around computer vision processing that allows machines to see and track human faces – hence the name Seeing Machines.

The technology is used in cutting-edge devices that manage eye disease. However the ramp-up in sales is based around a different application of the company’s scientific know-how.

For SM has created an in-cab device that monitors the face and eyes of drivers of the trucks and heavy tonne earth movers used by mining companies.

It is not immediately obvious why one would need a machine to do this, even in today’s Big Brother society, until you realise that tiredness and distraction leads to hundreds of accidents per year on the road.

You see, SM’s machines – called driver state sensors - are able to automatically detect the warning signs of fatigue which set off an in-cab alert, while the data is also electronically monitored by the dispatcher. 

It is sales of these DSS systems that are expected to power the group’s drive to profitability this year.

Mining giant BHP Billiton (LON:BLT, ASX:BHP, NYSE:BHP & BBL) is a customer of Seeing Machines, as is America’s Freeport McMoRan (NYSE:FXC).

“The DSS is what’s transforming our business,” chief executive Nick Cerneaz told Proactive Investors.

“The contracts we are getting are driving a very big change. In the first month of this new financial year we had exceeded the revenue for the entire previous year for the DSS business. 

“This is a fairly transformational change. And it really is driving our belief that this year is going to be quite different to last year. 

“What it comes out to be, well only time will tell. But it is a transformational year. 

“Using last year’s numbers as a guide to this year is going to leave people lacking in detail. 

“It is a different year and a different business now. The business is moving along very well.”

The company’s broker Daniel Stewart says revenues for the 12 months to June 30 2011 will jump US$5.2 million to US$9.2 million. This would give a pre-tax profit of US$1.4 million compared with a loss US$1.7 million.

However it has taken almost 14 years to get to this point, according to Cerneaz, who is taking nothing for granted.

This risk now is the strategy is poorly executed and that the projected top-line growth doesn’t filter down to the bottom line.

A placing of shares in March raised £3.3 million, which is expected to see the company through to the point it can fund its growth from its own resources.

The cash is being used to employ staff to support the DSS and for product development. 

“Our issue is not sales, it is being able to support (the sales push),” Cerneaz said. 

“Growing for an extended period comes with many pitfalls. 

“We did this fundraising to build our capability to service the market.  The market is big and geographically spread. 

“We are trying to create enough capability in our business to address and deliver a solution and most importantly the after-sales support to bring in new clients around the world.

“There are also pricing and market opportunities. It is important for us to reduce the cost of goods and generate a better margin.

“But it really requires service support. This is one of our crucial tasks going forward.” 

Mining is a geographically diverse business, which means Seeing Machines needs a support presence in many regions of the world.

It sells directly into the Australian market as well as the US and Canada, while it has employed sales and support agents in Africa and South America.

“Big miners are giant international companies, so we need to be able to go where they go,” Cerneaz says.

“We are certainly tracking orders in most continents – not so much in Europe.

“Our own direct efforts are in Australia, US and Canada, and we are working with agents in Africa and South America. We are not trying to do everything ourselves. We are happy with our partners as agents.”

But he warns: “We must avoid being overwhelmed by the stream of new business by being ready to support the new installations as they come online.”

The next 12 months ought to see a stream of new order announcements, though it is hard to predict when they will arrive. “They will come in spurts,” Cerneaz says.  

“We are at a tipping point. The mining industry is showing all the right signs of buying our equipment. 

“Miners recognise the have an issue and they want to solve it. And we have the solution.”