Supply chain crunch could prove a boon for Starcom

The AIM-traded firm said that negotiations for potential new contracts were progressing, adding that it was in “advanced stage discussions” for a number of “potentially substantial” projects concerning the supply of its devices for the tracking and monitoring of containers and related items.

Should they be successfully concluded, they could provide significant revenues over the next few years, including software-as-a-service (SaaS) revenues.

“There can be no certainty that these negotiations will lead to final contracts or if they do, what the final terms and value will be,” the board said in its statement.

“However, certain potential clients have indicated their desire to reach an agreement with Starcom for its technology and the board is hopeful to conclude one or more contracts before the end of this year.

“This includes discussions with potential customers in South America and the United States, including one that the board considers to be one of the major companies in the field of tracking and monitoring containers.”

Separately, Starcom said it had been undertaking a strategic review of its position in its markets together with professional advisers.

As a result, it said it now intended to start rebranding its products and, now that Covid-19 restrictions on travel were less onerous, it said it would focus on increasing its global marketing plans and seek to take advantage of the major increases in the costs to companies of shipping with containers.

The board said it was also giving consideration to a possible change of name to reflect the new branding image which was being developed.

“Trading in the second half of the year is still expected to show an improvement on the first half, but much depends on the finalisation and timing of signature of the contracts referred to above,” the board said.

“The company has maintained a key focus on cash in light of the challenges faced in managing inventory levels and dealing with the global shortage of components needed to make products.

“The worsening supply chain issues facing multiple sectors and businesses of all sizes have been well publicised and, unfortunately, Starcom has not been immune to these challenges.”

Starcom said those issues included material increases in freight costs and shipping timeframes, as well as increasing component costs and reduced availability.

“Some orders for customers, existing and prospective, have been delayed as a result, particularly as suppliers now often require full payment in advance.

“This inevitably impacts cash flow projections and the company is working hard to mitigate this as best as possible, including ensuring a sufficient working capital buffer, and the company is proposing to raise up to £0.45m in an equity subscription which it expects to be able to conclude shortly.”

At 0930 BST, shares in Starcom were up 26.49% at 1.17p.