Jenny Ruth: Mooring Systems eager to cast off

While Mooring Systems shares have come off the boil since their frothy start to the year, the market's reaction to the company's slower-than-expected progress and a couple of setbacks has been relatively benign.

The company, which has developed a revolutionary vacuum pad-based ship docking system which eliminates the need for people and cuts docking time from up to 15 minutes to about 10 seconds, only commissioned its MoorMaster 800 mooring unit at the Port of Dover last month, about 18 months behind schedule.

The late start, caused by delays in completing civil works on a new pier, was beyond Mooring Systems' control, but meant only now has it an installed unit with which to demonstrate its technology to potential customers in Europe.

It also meant a delay in Dover deciding to go ahead with its intended purchase of a further five units.

The company also lost out when the 10-party consortium it was part of failed in its second stage submission for a US Navy project. Mooring Systems' part of the bid, which made it through the first stage in March last year, was a ship-to-ship system which was successfully trialled in October last year, mooring the Aratere ferry and a heavy landing barge Patiki in the Marlborough Sounds.

And of three contracts the company had hoped were all but landed as late as May this year, only one has eventuated: the contract for two MoorMaster 400 mooring systems worth nearly $1 million at Picton for Toll NZ's new Kaitaki ferry.

Mooring Systems had already installed a docking system at Picton for the Aratere in September 2003. (Tranz Rail's financial woes before it was taken over by Australia's Toll Holdings was another setback for Mooring Systems because companies fighting for survival aren't disposed to buying radical new technology.)

Of the other two, managing director and company founder Peter Montgomery told the annual shareholders meeting in August that one wasn't going to happen at all and the decision on the third had been delayed until later this year.

All that goes a long way towards explaining why, after reporting a modest $11,883 net profit for the year ended March 2004, the company reported a $1.17 million loss for the following year.

Two years ago, the company had hoped to break even in 2004 and to report a $1.145 million profit in 2005.

By last year's July annual meeting, it was forecasting a $500,000 first-half loss. When it reported a slightly higher $593,000 first-half loss, it forecast a $1.2 million loss for the full year.

Sales slumped from $3.9 million in 2004 down to just over $1 million in 2005.

The company has also been talking for some time about the many potential customers it is in discussions with through its European partner, Cavotec, but so far the only order to be landed is the installation of two MoorMaster 400 units at the Port of Salalah in Oman, which is also interested in MoorFender.

A byproduct of that contract meant the company put on hold its development of a cheaper, less sophisticated and more passive product called MoorFender for use in container ports and bulk terminals.

Testing of the units to assess their ability to dampen ship movements caused by long waves was completed last month. Mooring Systems said then that its initial opinion was that the test results were very favourable and that it would update shareholders this month.

In May, Montgomery said Cavotec was tracking 21 prospects and that Mooring Systems was working on a further five.

But the only other public announcement it has been able to make is last month's one that Canada's St Lawrence Seaway Management Corporation has commissioned it to complete a study of how Mooring Systems technology could enable a hands-free way of securing vessels transiting its seaway.

The company has been talking for some time about Japanese parties interested in its technology but no deals in that direction have yet emerged.

Mooring Systems shares shot up from $4 early this year to a peak at $5.21 in February and have since subsided to the $4.40 mark. Shareholders who participated in the November 2002 float when the initial shares were issued at 50 cents are unlikely to be too worried.

Montgomery said the delays at Dover were material. While the company already had MoorMaster 400 units operating at Picton and eight of the same units operating in Melbourne and Tasmania for Patrick Shipping, customers in Europe simply were not interested in looking at docking systems on the other side of the world.

"They want to make sure their local operations are going to work with this technology."

That degree of conservatism is typical of the industry. Mooring Systems' Port of Salalah installation is being financed by the AP Moeller Group, the world's largest container shipping line and the third largest container terminal operator.

"These are large organisations and they don't make decisions quickly - you can't wake a sleeping giant all that quickly," Montgomery says.

Such companies get proposals from around the world every day. "They're naturally cautious when someone approaches them from the other side of the world and offers them new technology."

One perhaps surprising aspect of the company's progress, given the sales it has made to date and the huge degree of credibility incurred from the names of its customers, is that no competitors have emerged.

Most docking is still done manually by a number of crew and ropes.

"I guess the larger we get and the more sales we make and we start proving the market, it may excite someone to look at being competitive," Montgomery says.

But given the hurdles such as developing technology and cultivating customers, "why go down that road when you can just buy us up? That's much simpler." He was quick to deny he's expecting a takeover offer any time soon.

If Patrick's experience is anything to go by, having the Dover unit installed should represent a major breakthrough for Mooring Systems, possibly paving the way for the company to start consistently reporting profits.

The Patrick units have been operating reliably and have needed little maintenance since their December 2003 commissioning.

The last time the company raised funds was in June last year when it raised $1.5 million in a placement.

Chairman Michael Cashin told the August meeting that the company's cash of $1.213 million at March 31 meant it had sufficient money to cover operating expenses for 18 months before recognising any profit generated from future sales.

Montgomery also told the meeting he expected the first-half of the current year would be profitable.

Now he says that consistency and providing shareholders with returns is something he's striving to achieve. He would like to see the company moving from one project to another without the gaps experienced in the last year or so.

Mooring Systems

Headquarters: Unit 9, Amuri Park, 404 Barbadoes St, Christchurch

Profile: The company has developed a revolutionary vacuum pad-based ship docking system which eliminates the need for people and cuts docking time from up to 15 minutes to about 10 seconds. Most docking is still done manually by a number of crew and ropes.

Market capitalisation: Nearly $56 million at $4.40 a share.

Latest results: The company reported a $1.17 million net loss for the year ended March compared with a modest $11,883 net profit the previous year. Sales slumped to just over $1 million in 2005 from $3.9 million in 2004.

Management: Managing director Peter Montgomery.

Major shareholders: PI Holdings and Property, a company controlled by Montgomery, with 21.1 per cent, and Montgomery holds 6.09 per cent in his own name. Institutions including ACC and Axa own 17.3 per cent.