COMPARATIVE VACUUM MONITORING (CVM™) TECHNOLOGY STRUCTURAL MONITORING SYSTEMS ASX: SMN CVM™ is a tested and proven technology for in -situ, real time monitoring of metal fatigue and structural faults in metal and composite materials in wide range of industries including aviation, civil infrastructure, transportation, defense and construction.
TABLE OF CONTENTS 1. CORPORATE 2. FINANCE CVM™ APPLICATIONS 3. 4. MANUFACTURING AND ENGINEERING 5. COMMERCIAL ACTIVITIES AND PROGRAMS 6. STRATEGIC OUTLOOK 7. DIRECTORY
CORPORATE
CORPORATE: OVERVIEW History shows a need for accurate, reliable, in- The need to be continuously monitoring situ monitoring of the structural integrity of structures became known as Structural Health airplanes, bridges, pipelines and buildings. Monitoring (SHM), and it is in this category that SMS’s Comparative Vacuum Monitoring (CVM™) The traditional testing for evaluating the condition technology is the forerunner. of structures has been static and retrospective, using hand-held tools enacted on tested In 1999, Structural Monitoring Systems Ltd materials. These techniques fall into two broad (SMS) became owner of CVM™ and began categories: Condition Monitoring (CM) and Non operations in Perth, Western Australia to develop Destructive Testing (NDT). and commercialize the technology. Once tested, the structure is assumed to be safe The parent holding company, Structural until the next inspection. However, much can Monitoring Systems plc, incorporated in the occur to the structure before the next test. United Kingdom in 2003 and floated on the Australian Securities Exchange (ASX) in August Aside from this uncertainty, manual testing is a 2004. continuous, re-occurring, labor intensive procedure that is subject to human error and The aviation industry was seen as the perfect misinterpretation. application for the CVM™. In the past ten years, SMS has undertaken multiple programs to Early techniques developed to assist manual gain certification for the use of CVM™ as an inspection included magnetic testing and dye accepted method of carrying out periodic and penetration. These techniques were focused on continual maintenance. surface defects only. Subsequent techniques such as x-rays, eddy currents, and ultrasonics could detect internal flaws in materials.
CORPORATE: INTELLECTUAL PROPERTY OVER 20 PATENTS HELD GLOBALLY. JURISDICTIONS INCLUDE THE USA, EU, CHINA AND BRAZIL, PROTECTING ALL ASPECTS AND COMPONENTS OF CVM™ OVER 20 PATENTS PENDING ON NEW INVENTIONS COMMITMENT TO AGGRESSIVELY DEFEND EXISTING PATENTS, IF APPLICABLE, AND PURSUE NEW INVENTIONS
CORPORATE: MILESTONES 2008 – First ever-trial 2010 – Development and supply of CVM™ sensors and 2014 – Commencement of joint production installation on Boeing aircraft structure in periodic PM200 to Embraer for Sandia/Delta Airlines/Boeing program to test CVM™ on Delta association with Boeing, FAA flight test and evaluation. and airline representatives. operated Boeing 737-NG 2010 – Delivery of first in-flight aircraft, paving the way to FAA 2008 – Airbus accepts CVM™ monitoring system to Embraer approval of technology for use as “Technology Ready” for S.A. in commercial aircraft. inclusion in its commercial 2011 – New management 2014 – SMS and AEM undergo aircraft maintenance programs, and present CVM™ to Airbus begins optimizing company’s in-depth facility evaluation and operator’s structural operations. audit by a major global aviation engineering group. OEM to approve SMS as a 2012 - Operations moved to Preferred Supplier. 2008 – Bombardier recognizes North America and new CVM™ as having role in 2015 – SMS begins process of manufacturing partnership reducing their aircraft’s formed with Anodyne formalizing key strategic maintenance costs. Electronics Manufacturing Corp Agreements with Testia GmbH (“AEM”). and Sikorsky Aircraft. 2008 – Large-scale installation of CVM™ sensors on 3 2013 – Second in-flight program 2015 – SMS successfully commenced with Embraer — Embraer Full Scale Fatigue Test completes all phases of the joint aircraft rigs. utilizing sensors on E-Jet series Sandia/Delta/Boeing aircraft, with support and commercial in-flight program. 2009 – FAA / ATA NDT Forum technical assistance provided Pivotal approval meeting with “Better Way” Award— first time by Sandia. FAA and Boeing scheduled for ever awarded to an SHM Dec-2015. Technology.
CORPORATE: MILESTONES 2016 – Sikorsky Helicopter 2016 – SMS raised $3.7 million through the placement Programme testing was of 2.6 million shares at $1.40 per share to a leading completed very successfully, Australian hedge fund with over $1bn under and the sensors clearly management. This sees SMS fully funded relative to its exceeded the requirements for foreseeable total cash flow requirements for 2016/17. the probability of detection measurements for the chosen Sikorsky test application. 2016 – SMS confirmed the completion of 10 successful installs in the NLR/Apache AH- 64 attack Military Helicopter In- flight Pilot Programme . 2016 – SMS, Sandia and Embraer have collaborated to select representative “hotspot” applications on multiple aircraft types. Currently, three far- reaching, generalised CVM™ Service Bulletin (“SB”) revisions have been written for entire aircraft regions.
FINANCE
FINANCE: STOCK PERFORMANCE Year-over-year Stock Performance KEY FIGURES ASX Ticker SMN Shares on Issue 101,871,470 $A270mm Market Cap. Price $A2.65 Data as of 20 September 2016. Source : ASX. Data as of 20 September 2016.
FINANCE: TOP SHAREHOLDERS Closely Held Shareholder Base: • Top 5 shareholders own 40% of outstanding shares; • Top 10 shareholders own 50% of outstanding shares; • Top 20 shareholders own 54% of outstanding shares; • Directors, management and close strategic partners of the Board own over 50% of outstanding shares. Data as of 31 August 2016
FINANCE: CASH BURN AUD$ Annual Static Cash Expenditures In millions 7.0 6.0 5.0 4.0 3.0 2.0 1.0 - 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
FINANCE: CASH BURN (%) Net Operating Cash Flow and Static Cash Expenditures as Percentage of Market Cap 80 70 60 Net Operating Cash Flow 50 Static Cash Expenditures 40 30 20 10 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
FINANCE: FAA AIRWORTHINESS DIRECTIVES (AD) FAA MANDATED AD’S TARGETTING METAL “CRACKING” 700 574 600 430 500 400 300 200 105 39 100 0 BOEING AIRBUS EMBRAER TOTAL NOTE: 1- US MARKET ONLY 2- DOES NOT INCLUDE SERVICE BULLETINS (SB) ISSUED BY OEM’S 3- DOES NOT INCLUDE AD’S OR SB’S FOR COMPOSITE MATERIALS
FINANCE: FAA AIRWORTHINESS DIRECTIVES (AD) NUMBER OF AD’S FOR METAL “CRACKING” ON SELECTED BOEING AND AIRBUS AIRCRAFT 250 200 150 100 50 0 737 747 757 767 777 A318-321 A330 NOTE: 1- US MARKET ONLY 2- DOES NOT INCLUDE SERVICE BULLETINS ISSUED BY OEM’S 3- DOES NOT INCLUDE ADs OR SERVICE BULLETINS FOR COMPOSITE MATERIALS
FINANCE: REVENUE MODEL REVENUE MODEL • FIXED ANNUAL ROYALTY AGREEEMENT • UNLIMITED USE OF CVM SENSORS ON ALL AIRCRAFT • VARIABLE ANNUAL ROYALTY AGREEMENT • LARGE AND/OR SMALL OPERATORS • CVM SOLUTION FOR INDIVIDUAL AD’S AND SERVICE BULLETINS • AMOC DRIVEN CVM SOLUTION • CAPTURE A PERCENTAGE (10-15%) OF BOTH THE COST OF INSPECTION AND LOST REVENUE • OEM MODEL • CVM BUILT INTO NEW AIRCRAFT • FIXED AND/OR VARIABLE “ANNUITY” MODEL
CVM™ APPLICATIONS
CVM™ APPLICATIONS: AVIATION There are significant growth opportunities for SMS has well established the Company’s periodic monitoring system, technical relationships with the PM200, and associated in- situ CVM™ the world’s largest aircraft sensors, particularly in the world’s aging manufactures and a number military fixed and rotary wing aircraft fleets. of air forces that understand the CVM™ value proposition Major aerospace companies regard CVM™ and have defined as an important ‘enabling technology’ for the requirements for its use as a optimization of the structural design of future substitute for traditional aircraft. This will lead to opportunities to manual structural integrity negotiate license agreements with aircraft inspections. and avionics suppliers for the integration of CVM™ sensor and instrumentation into The company is the “First future aircrafts’ structural health monitoring Mover” in aerospace systems. structural monitoring, a market with high margins and high barriers to entry. Competing technologies are being developed, but to date, they have not been as effective or robust as CVM™. Full Scale Airbus A380 Test Program incorporating CVM™
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