Order postponement knocks back SRT Marine Systems

SRT Marine Systems said on Monday that it has been advised by its customer that the contract to supply an MDM system in South East Asia, contracted in March 2016, has been postponed and is expected to recommence during the end customer's new fiscal year which begins on 1 March 2018.

The AIM-traded firm said the unnamed Europe-based customer, which is the prime contractor to the Asian government entity, had been formally advised by the end customer that the postponement iwa due to internal project review and budget issues in their current fiscal year.

“The receipt of this news was both surprising and disappointing,” said CEO Simon Tucker.

“This is the only project where SRT is not actively engaged with the end customer at a senior decision making level and thus we must rely entirely on our customer for information and instruction.”

SRT’s board said the letter from the end customer to SRT's customer, which had been shared with SRT, provided “explicit confirmation” of their desire for the system, the continued validity of the contract and associated payments, along with the revised timescales.

Although the formal communication by the end customer was “clear and reassuring”, given the significantly extended timescales, in line with appropriate accounting practice the board said it believed that it was prudent to consider the project indefinitely suspended from an accounting point of view.

“There is a clear imperative for the country in question to significantly enhance their maritime domain awareness and this fact is reflected in the formal letter from the end customer which confirms the validity of the contract and that the project will recommence in their new financial year,” Tucker added.

“However with an indeterminate restart date and therefore payment date it is right that we maintain a prudent accounting approach and make a full provision at this time.”

SRT said the net effect of the situation would be an exceptional profit and loss account impairment charge of £1.5m in the current financial year.

That figure included the write-back of associated accrued project costs such as equipment as well as all directors’ bonuses that were accrued but not paid in the last financial year.

The associated net receivable of £2.2m was written off within that impairment charge.

Upon recommencement of the project that money would be paid, contractual deliverables completed along with associated revenues, the board said.

“I note the clear and formal commitment from the end customer to this project and to move forward with it during 2018,” Simon Tucker commented.

“Thus this remains a very significant pending project for SRT.”