Andrew Lockley – Exponential Investor (United Kingdom) –
Before I get started today, I need your attention for a moment. We’re going to spend much of the rest of the week focusing on cryptocurrencies, like bitcoin. These have proved to be a spectacular investment opportunity in recent months – making many investors very rich. I’m sure you’ll want to know how to profit from this new sector. So, in order to help you make sense of what we’ll be covering, we’re giving you Sam Volkering’s book for free, so you can read up on the subject. You’ll enjoy our forthcoming coverage much more, if you get it here.
You might think of drones as things that fly. That market is indeed exploding. Airborne drones are being used to inspect everything from crops to power lines – in addition to their well-publicised military uses.
But there’s a significant market for similar inspections, under the sea. Wind turbines, pipelines, undersea cables, etc, all have to be surveyed. Even today, that’s an interesting business to be in. In future, these markets will only grow – as we expand offshore sectors, such as aquaculture and renewable energy.
Today, I’m speaking to Brian Allen, of Rovco. He’s in the business of “underwater drones”, as you might like to call them.
I’ll let him explain why this is such an exciting opportunity.
AL: Hi Brian. Can you start off by telling me a bit about Rovco?
BA: Rovco was established to deal with some of the huge cost issues I’ve seen in the offshore energy world when working with subsea projects. We’re creating new ways of doing some of the more mundane but costly work associated with maintenance and inspection of subsea infrastructure. Rovco is a remotely operated underwater vehicle (ROV) services company, and in tandem with this we’re developing autonomous image-based 3D underwater survey techniques to be used by offshore renewables, oil and gas companies. We’ve just started a funding round and are raising £500k to be in place by August, with another £1.5m needed 18 months later. Our trade sale exit is planned for 2022 – with well over 10x growth for everyone concerned.
AL: How far along are you?
BA: The ROV services side of the business is already operating and profitable, so we can support ourselves indefinitely. Regarding 3D modelling: we’ve overcome the challenges associated with doing this with ROVs underwater. We pretty much have that nailed, using post-processing techniques. We should have real-time point cloud modelling finalised within another six months. On top of this we’re currently finishing the design and patenting process on a specific underwater camera that will improve detail. With investment, we’ll put together the team of senior computer vision and control system specialists that will enable our move into further real-time processing and autonomy.
AL: What’s the actual benefit?
BA: The subsea inspection and maintenance market is predicted to turn over ~$1bn by 2020. Using this tech we can offer the same inspection service as major companies like Subsea 7, Fugro and Oceaneering – but at 20% of the price, and possibly less with another advancement that we plan to make.
AL: Why does subsea inspection currently cost so much?
BA: At the moment inspection takes place using manually-controlled ROVs. These are about the size of a small van. They are attached, by a tether, to large survey vessels. The ROVs are driven by teams of pilots on the vessel, under the direction of a team of surveyors and inspectors. The ROVs move around underwater structures, looking at issues as they go. Subsea structures are videoed in mostly standard definition, and this feed is recorded live on to DVD or hard drive. The complete recording is then delivered to subsea engineers of the asset-owning company, when the vessel is next in port. Inspecting a large subsea asset field can take up to three months. Because of the number of people involved, and the size of vessel needed to support them, a three-month subsea survey project on one field can cost £10m-£13m.
AL: How will your service and product help?
BA: By using 3D image-based modelling techniques, which can be uploaded via satellite directly to the asset owner, you no longer need the huge team of surveyors and inspectors. The end project engineer or office-based inspector can complete their own survey; manipulating the model on their laptop however they want, zooming in and looking at any structure in their own time. Further, we are looking to use difference modelling and machine learning techniques to automate the inspection. Once we move to using autonomous vehicles, you no longer need the pilots either, or even some of the project management team. By reducing the size of the offshore team, you can reduce the size of the vessel – and by doing both you realise huge cost savings.
AL: Can you tell us any more about this other advancement you mentioned that could reduce inspection prices even further?
BA: Currently, we’re looking at ways of eliminating the use of offshore survey and ROV vessels altogether.
AL: Why will you and your company be the ones to make this succeed?
BA: Firstly there’s a huge need. Oil and gas prices are at historic lows now, so energy companies need to keep finding innovative ways to reduce their costs. Also, the offshore renewables industry is growing rapidly – and it’s encountering similar issues. I have been in the subsea robotics industry for ten years while running multi-million pound underwater ROV projects, so I know exactly what the issues are. We also have an extremely strong team. Our CTO has a PhD in artificial intelligence, and he’s been working on European Space Agency projects in similar technology areas. We also have a hydrographer with a 3D-modelling specialisation. We therefore have a senior team of professionals that make the most capable, lean team to tackle these issues. We’re also innovating and patenting new products that will ensure that it will be difficult to compete with us. We’re doing it because we can, we know how to, and the market needs it.
AL: What’s your business model?
BA: We’ve looked at how best to monetise our innovation, and we realised that the majority of profits will come from service delivery – rather than from product sales or licences. This is mostly because even though it’s a billion-dollar market, there are relatively few offshore energy companies in the world (counting renewables, oil and gas), and a low number of service providers. We’ll therefore create the tech and take it to market ourselves. Hence the need to focus on creating a service delivery side at the same time as the technology – as otherwise our growth could be constrained by resource availability.
AL: Do you think this 3D image-based survey technique will replace traditional video?
BA: Absolutely, 3D image modelling is the future of survey, as are autonomous subsea vehicles. Rovco will be bringing these technologies together and create a huge step change in the market.
AL: Can you tell me about the firm itself – your future plans, fundraising, that sort of thing?
BA: We launched in September 2016 – mostly self-funded with about £100k. Since then we’ve attracted Innovate UK funding to prove our concept. Our ROV service-delivery side took off quite quickly, and brings in enough to cover our running costs. It’s still growing fast. We employ four people, and could self-fund development – if we only needed a couple more developers. However, I need this to accelerate as quickly as possible to achieve the best growth, so we’re going through a funding round now. We’re looking to bring in between £250,000 and £500,000. This will take us through a fast 12-month algorithm and software development phase, and take our first offering to market. Once it’s gaining traction we’ll bring in another £1.5m to scale the business.
AL: Where do you think this will lead?
BA: With the right investment and growth plan, we’ll be turning over approximately £35m on a 30% profit margin by year five. We’ll then be looking for a trade sale exit of £60m-£100m, giving all investors well over ten times return. The larger companies in our sector typically acquire the smaller innovative firms and this exit situation is common. However, as we’re disrupting the market, there’s a real chance we could be looking at revenues over £100m by that time, if we really cut margins and go for growth. Those decisions will be made by our board as we grow, but either way we’ll be bringing our investors a very good return.
AL: Do you believe there’ll be much competition?
BA: There are a handful of companies around the world in post-processed, subsea 3D visualisation, but only two in real-time subsea 3D. None, however, are looking at using the tech the way we are. So we’ve really found a niche that we want to exploit – before others work out how we do it and find another way around the challenges.
AL: Is what you’re doing pretty unique?
BA: Yes, and the market is huge. This is why we need to move fast.
AL: What drew you to this project?
BA: Several years ago, before Rovco was set up, I was performing an inspection on a subsea manifold using an ROV and discovered an oil leak on a neighbouring asset that wasn’t due to be inspected for quite some time. It must have lost 10,000-20,000 barrels by the time we found it. The owning company covered it up and reported it as a 0.7 barrel loss. This was in a field that was a real mess, and was well beyond its original predicted life span of 20 years. I realised that the issue wasn’t just here. With ageing subsea assets all over the world there was potentially going to be a very big future problem.
Periodic video inspection wasn’t going to be the best way to manage these assets, due to the weaknesses in video survey, and the ease with which even videoed anomalies could be missed.
3D survey, with machine learning inspection, has the ability to improve anomaly detection and enable vast improvements in subsea asset management. Bringing these technologies together, and applying them subsea, can bring a truly ground-breaking service to market that will revolutionise how energy companies manage their subsea infrastructure and improve subsea asset integrity. I’m really excited by how we’ll be able to help solve these issues.
AL: Moving on from your own area, you’re in the offshore energy sector. What do you think the future holds for this?
BA: Right now there’s more offshore energy coming from oil than renewables. As the emerging markets mature and make the same moves that our economies are making towards renewables, there will eventually be a decline in oil. This will bring about a rise of more offshore renewable infrastructure as more wind farms, wave, tidal turbines and even floating solar farms are installed. However, at the same time asset integrity will be paramount. That’s particularly the case with ageing oil assets, which are unlikely to be replaced during an industry decline. I can’t see the cycle of peak and trough in oil continuing for more than one more major run, and I very much doubt the next will reach the highs we saw during the last boom. We’re witnessing the decline of offshore oil, and the large service companies are stuck with underutilised, expensive, loss-making vessels – and old robotics technology. The world needs innovative subsea solutions and I believe small companies like mine will become the giants leading the way in the future.
AL: How do you think your service will develop over time?
BA: We have a series of innovations planned that will keep us a of the pack, and we’re recruiting based on current and future need. We’re making sure the skills are in place to work with intelligent autonomous vehicles of the future. Our overall, long-term plan is to specialise on equipment and services for extreme environments wherever they may be – while keeping a strong focus on technologies that can be commercialised.
AL: So what other sectors do you think you may target in the future?
BA: Obviously, there is a lot of work to do in subsea energy, but I do see a growth in the subsea mining industries. There are applications in defence, space, nuclear and nuclear decommissioning. The robotics, systems and challenges involved in all these areas are remarkably similar.
AL: It sounds like it’s quite exciting at Rovco at the moment; do you have any parting comments?
BA: It really is; to be honest I can speak for the whole team and say that we all love it. Thanks so much for your time and your interest, it was good to tell you what we’re up to.
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